Companies are staying private longer and raising more capital privately than in the past as investors shift to private markets from public, a report by the CFA Institute shows.
The report says well-funded institutional investors are leading a shift in capital formation away from public markets and toward private markets. Private capital-raising carries fewer regulatory burdens and typically enables companies to retain greater control over their businesses, said the report.
Figures showing institutional investment in private markets vs. public were not immediately available.
The report also found that companies are staying private longer, with the median time to an initial public offering for a U.S. company rising to 7.7 years in 2016 vs. 3.1 years in 1996. The CFA report said these firms are also able to raise more capital, with a median $97.9 million raised prior to IPO in 2016 vs. $12.2 million in 1996. The CFA noted similar trends are found in the U.K. and eurozone.
The CFA also made a number of policy recommendations to ensure fuller market transparency, including that supranational regulators should investigate "the systemic implications of the boom in private markets." The CFA warned that the amount of capital available in private equity funds — so called dry powder — had increased in recent years along with "a growing perception that valuations are high with no discount for the illiquidity of the underlying investments."
Spokesmen for the CFA could not provide figures or further details.
