Public vs. Private

In 2008 the number of publicly listed entities approximated the number of companies owned by private equity firms at around 4,700.

A decade later the number of companies owned by private equity ballooned to 7,700, while the number of publicly listed entities has declined by a couple hundred.

The number of publicly listed U.S. companies has seen a dramatic decline:

“There are only 3,500, down from a peak of nearly 7,500 in 1997 and roughly 5,000 when the benchmark launched in 1974. There are many reasons to worry about a decline of public companies, but fears about the death of public equity—revived this week by Elon Musk’s potential bid to take his electric car maker Tesla private—are certainly overdone.”

The article cites reasons for this transition (bulleted for easy reading):

1. Public companies are frequently the target of private equity firms.
2. IPOs are in decline largely due to the incredible amount of VC capital and debt that supports startups.
3. Founder entrepreneurs increasingly desire greater amounts of control.
4. Today’s startup requires less physical capital to launch.
5. To echo some of the bullets above, an abundance of capital in many shapes and forms.

While the number of publicly traded stocks is down the value of publicly traded companies in aggregate stands in excess of $30 trillion.

Fewer and fewer companies representing an ever growing portion of the economy may raise concern surrounding the “concentration of economic and political power,” but the counter would be whether or not this is worse than the lack of transparency in private markets.

An article in The Economist provided two data points highlighting changes to the private equity landscape. As the industry continues to grow with ever-mounting sums of dry powder (the article cites $1.1 trillion of dry powder with “another $950 billion being raised by 3,050 firms”) the article highlights a shift in how firms service these funds. What stood out most was the idea that the number of opportunities actively monitored by investment bankers has now easily surpassed the number of publicly traded opportunities.

• Goldman Sachs has 25 merger bankers assigned to private-equity firms, working on deals alongside colleagues who focus on specific industries. Its analysts monitor 5,500 private-equity holdings—50% more than the number of listings on the American public markets.
• In the past two years the number of limited partners with more than $1bn invested has grown from 304 to 359. Together they account for $1.5trn—half of all private-equity money, according to Preqin. 

Private equity continues to evolve, and as the number of PE firms appears to continue to grow, I thought this quote from the Economist made for an interesting introduction to the fund landscape:

According to Preqin, a London-based research house, there were 24 private-equity firms in 1980. In 2015 there were 6,628, of which 620 were founded that year (see chart 2). Such expansion looks all the more striking when you consider what has been happening elsewhere in business and finance. In America, for which there are good data, the number of banks peaked in 1984; of mutual funds in 2001; companies in 2008; and hedge funds, probably, in 2015. Venture-capital companies are still multiplying; but they are effectively just private equity for fledglings.