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This edition of Research Perspectives continues our tradition of including a range of relevant investment topics, but this time highlighting two core themes – equity investing and responsible investing.
This edition’s featured article, Public and Private Markets in Transformation defines how public and private equity markets are transforming and how emerging new trends may impact future investment approaches.
The landscape for public and private markets has changed significantly over the past decade, with a marked shift in capital allocation to the private arena. This evolution is being driven in part by regulations, new technologies and the availability of financing alternatives. Other key drivers are the accommodative monetary policies following the financial crisis of 2007–2008 and the more recent investment capital inflows from sovereign wealth funds, which have been significant.
What is the impact?
As private and public markets are becoming more mature, new trends are emerging that may impact future investment approaches. The distinctions between private and public markets may lessen, and return, risk and liquidity may be accessed in different ways. It is foreseeable that private market funds would consider investing in a company during its private, rapid-growth phase and remain invested once the company goes public.
Why should investors pay attention?
Some investment growth opportunities have shifted from public to private markets, with companies staying private longer or seeking a private placement rather than an initial public offering. As a result, public market investors may not have access to the full and diversified investment opportunity sets that were previously available. Consequently, public market investors are unable to participate in the rapid growth and high equity appreciation phase of many companies. As such, risk/return expectations may need to be reevaluated in both public and private markets, which, in turn, may also ultimately have implications for asset allocation decisions. Moreover, alpha generation will be more critical, with market concentration increasing in public markets, whereas true long-term risk premia may prevail only in private markets. Liquidity budgeting and scenario-testing will continue to be important as the lines between public and private markets continue to blur, at least at the margin.
Click here to continue reading this featured article by Ursula Neiderberger, CEFA, CAIA and Dr. William Charlton, CFA. Our other insights for this edition of Research Perspectives include: