I recently read a report which highlighted how the American market space has changed over the last two decades. The two main points which were brought up were:

1.) The decreasing number of publicly traded firms. In 1996, there were ~11,000 firms which traded on NYSE as compared to 5600 today -a decline of almost 50%.

2.) The growth rate of the economy has been low - mainly due to the presence of more behemoth corporations than small independent firms. Smaller firms as a result of their size and lean operations would comparatively post better growth numbers as opposed to big corporations, where seeking growth becomes relatively hard.

In absence of dwindling growth, the big firms have resorted to booming M&A space to seek growth. Private investments into early stage ideas is another means by which the big firms and funds call first dibs on the promising ventures. As a result, a firm which would have IPOd at a much earlier stage 20 years ago, get easy access to private capital and IPOs at a much later stage - posting comparatively lower growth numbers.

In fact, the number of IPOs listed last year was almost 90 lower than the total number of IPOs in 1996. Private equity funds swoop up a majority of these promising startups - followed by a sales pitch to one of the big corporations - resulting in a hefty acquisition. Most of the big names have significant goodwill in the balance sheets, signifying overpaid assets.

My understanding is that the availability of easy money, lower interest rates and as a result easy capital for the PE funds drives these trends. PE is booming now. But if there is a big market correction - resulting in a significantly conservative monetary policy from the feds - PE industry will see a downturn soon.

Would love to hear thoughts.

Just my morning rant

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