Private markets back in focus
PrimaryMarkets, Australia’s number one trading platform for unlisted companies and securities, notes the outlook for interest rates and markets is uncertain but some early indicators are pointing to an improved outlook, especially in Quarter Four.
“If interest rates follow the current upward trajectory then savvy investors should be looking to time their re-entry into the markets while valuations remain compressed,” said PrimaryMarkets CEO Marcus Ritchie (pictured).
“There are a number of reasons why private markets can be more attractive to investors than public markets. Private market valuations tend to be lower than public market valuations and private market companies don’t carry the listing premium associated with companied listed on a public exchange, therefore providing investors with the opportunity to invest at a lower cost.
“Private markets typically have less liquidity than public markets, which can make it more difficult for investors to buy and sell shares without a dedicated trading platform. However, this also means that private market investments can be less affected by short-term market price fluctuations.
“Historically, private market investments have generally speaking generated higher returns than public market investments as private companies tend to have a higher growth potential than publicly traded companies,” noted Ritchie.
A stabilising interest rate environment could also drive further gains on private markets, he added.
“If, as expected, inflation is brought under control and interest rates stay around these current levels, we should l see benefits for investors including:
- Predictability: When interest rates are stable, investors have a better idea of what to expect in terms of investment returns. This can make it easier for investors to plan and make investment decisions.
- Reduced volatility: Stable interest rates can help to reduce the volatility of investments, which can provide investors with a more stable and predictable return.
- Increased investment activity: investors are more likely to invest when interest rates are stable.This can increase the liquidity and value of investments.
- Flattening borrowing costs: Stable interest rates also benefit companies and investors by reducing the cost of borrowing. This helps to encourage growth and investment in the economy.
“It is always impossible to pick the bottom of the market but we can look to the bigger picture economic themes to get a guide. If inflation falls and interest rates steady, as forecast by the end of 2023, then markets should be able to rebound quickly.
“Investors with the capital to invest should consider the private markets and look for companies that will deliver in the next growth cycle.
“Traditionally offering longer investment periods and a level of illiquidity, private markets have generally only been accessible to institutional investors and Private Equity. Today, private markets continue to dwarf public markets as unlisted companies outnumber listed companies 10 to one. PrimaryMarkets has been closely watching as the appetite for private companies grows and, in the process, has made many opportunities available for investors.
“A number of companies are staying private permanently and not listing, or companies such as Animoca Brands – one of Australia’s unicorns – went public on the ASX, then delisted, having decided that there was greater potential for unfettered growth in the private market.
“It’s important to note that investing in private markets also comes with its own set of risks, such as lack of liquidity and transparency, reduced governance oversight and a greater dependence on the reputation and performance of the management team. So it’s important to seek professional advice, or consult with a financial advisor, and conduct thorough research before making any investment decisions,” noted Ritchie.