Blackrock: Firms set to shun the stock market as volatility weighs on IPOs
Companies are set to shun IPOs and stay private for longer due to volatility still weighing on global equity markets, according to a new Blackrock report.
In its global outlook for private markets today, the world’s biggest asset manager said that ”mega forces” in financial markets are allowing private firms to access capital easier and driving some firms to shelve IPO plans.
“[Private markets] can provide more flexible and faster financing for companies that might shy away from public markets amid tougher macro conditions,” the report said.
The report comes after fresh listings have dried up globally in the past 18 months amid surging inflation and high volatility due to the Russia-Ukraine war. Global IPO activity fell for the third consecutive year in 2023 to $101bn, down from a peak of $459bn in 2021, data from EY showed.
Cash raised via fresh listings on the London Stock Exchange fell by 36 per cent in the third quarter after just five firms floated on the market, EY found.
The London Stock Exchange is looking capitalise on companies staying private for longer by launching a world-first stock market for private companies – temporarily called the “intermittent trading venue” – as early as next year.
Private debt is set to be a “key beneficiary of [the] structural shift” as the industry is “uniquely positioned to benefit from the shifts under way”, Blackrock’s 2024 Private Markets Outlook report said.
In its outlook for 2024 today, Blackrock predicted that the global private debt market will reach US$3.5 trillion by 2028, up from US$1.6 trillion in March 2023.
The market has boomed over the past year as higher interest rates globally have weighed on lending from banks.
Smaller listed companies are also being cut off from borrowing on the public markets increasingly look to larger borrowers, the report said.
Private debt loss rates are also lower than in public markets which has meant unlisted companies can more easily access capital. In the second quarter of 2023, yearly loss rates for public loans were more than double the loss rates for private lending, according to the Cliffwater Direct Lending Index.
BlackRock pointed to real estate, artificial intelligence and green energy infrastructure as other “mega forces” creating opportunities for investment in the near term.
By Amber Murray, Morning Wire reporter