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The Rise of the Unicorn and Private Market Access — When the term “unicorn” was coined, there were only about three dozen companies that fit the bill: a business valued at greater than $1Bn that hasn’t yet gone public.
Fast forward to today, and the number of companies in the private world with these outsized valuations has ballooned to more than 1100. Mind you, the idea of a unicorn was thought up in 2013—less than 10 years ago.
That’s a lot of new applications for what was once a relatively exclusive club.
Private markets afford money managers a playground in which there is a set of different rules. Private companies are under less scrutiny, face less regulation, and have increased flexibility to accomplish their internal mission and vision.
Public companies are subject to more frequent reporting requirements and disclosures that, at times, are bureaucratic hurdles to actually running a business.
Public markets are huge. Think about the S&P 500 and all of its market cap. Indeed, the top ten names by size hold almost a third of the market cap for the biggest 500 companies in the index.
The idea of small-cap investment isn’t completely dead in public markets, but the upside is not the same as in private markets.
Think about it. Why else would participants in private markets tolerate decreased liquidity and larger fees? The risk-return possibilities are mas bueno in the private world.
Lately, one of the OG names in the private space, Blackstone, has created real estate and debt funds aimed at private individuals, cracking open access to a once untouchable asset class.
If you’re looking to break into this game with small money, it might not be a bad idea; but on the aggregate level, a rapid influx of new capital into any market tends to increase market efficiency while lowering your chances of generating any alpha.
This new trend is just that: a trend. Investors will always look for new opportunities, just like bankers will always look to push new products. That’s how it works – the real constant here is change.
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