Buybacks are booming, equity issuance is falling and public markets are shrinking – at least in terms of the number of stocks available, which has fallen by 50% in the US since its peak in 1996. The value of what is available is rising (in the form of market capitalisation), driven both by the buybacks and the inflow of new funds.
But with new companies leaving it longer to go public because they can finding plenty of pre-IPO funding, existing listed companies are older, larger and slower-growing than 20 years ago. A report by fund investor Pantheon notes that the average US public company is 50% older and four times larger than two decades ago.
Public markets have their faults and a recent Donald Trump tweet hit on one of them: the burden of quarterly reporting when six-monthly would be as effective and a lot less time-consuming. But for most banks, which rely on their listed status for both funding and reputation, the shrinking of public markets is a cause for concern. Apart from the impact on their own funding if markets became discredited, there are also the fees from IPOs that would disappear and the many investment products they sell based on stock markets.
The worry with this last aspect is that retail investors start to realise the smart money is being made by private equity funds they cannot access, while more meagre returns are offered to them well after the main action is over. With this in mind, banks should be backing moves by regulators to make public markets function better for both the issuer and the investor, especially the retail investor.
Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen
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