Start-ups and companies seeking scale-up funding no longer flock to the stock market as readily as they once did. Many bypass the high street banks too. The reason? They have other options thanks to the ready availability of different types of funding from private markets, at least for those businesses showing fast growth potential.
Private capital markets, which have grown significantly in recent years, offer services ranging from debt funding, seed and venture capital to minority stakes and full buyouts.
Their efforts to rival public markets have been helped by bouts of volatility and illiquidity that have hit stock markets. The tougher life gets for listed companies, the more companies are tempted to go or stay private. Being on a public market comes with extra costs, the legal obligation to be fully transparent on all aspects of the business and the risk of a lifeless share price. Increasing numbers of listed companies are being taken private as their discounted shares make them easy prey.
Ironically, one way for investors to tap into the growth and profitability of private markets is through investing in companies that use public stock markets to raise capital for their private funding operations. Intermediate Capital provides a range of private funding, spanning debt, mezzanine finance and private equity. Petershill Partners, whose parent is Goldman Sachs, provides capital and expertise to private capital managers.
Investment trusts have invested in private markets for decades, and range from Pantheon International, which specialises in private equity assets, to Scottish Mortgage, which allocates a proportion of its portfolio to unquoted companies. Lucrative returns are not guaranteed and it has become an increasingly crowded market, which brings additional risks. Investors should take care to avoid overexposure and to research the available options properly.
Intermediate Capital (Hold)
