Institutional investors are losing interest in public markets around the world as their war chests for private deals get increasingly larger, Brookfield BN-T chief executive officer Bruce Flatt said at a regulatory event on Wednesday.
Speaking at a panel discussion held by the Ontario Securities Commission debating the question “do public markets matter any more?” Mr. Flatt said public and private markets are symbiotic and that Brookfield operates in both. However, he also predicted that within the next 10 years, more than 30 institutional investors around the world – each with more than US$1-trillion in assets – will prefer private markets.
“They have to have things in the public markets, but the sums are so vast that they don’t want the distractions of the public markets on a day-to-day basis for all their capital, they just want to buy businesses,” Mr. Flatt said. “Public markets is just the ownership of a fractionalization of a business, but most people get confused because they think it is a casino.”
“That is why the private markets continue to grow, because these large funds have US$200-billion or US$500-billion or a trillion or two trillion, don’t want to have the distractions of the public markets for everything they own in their portfolio and be at the vagaries of the markets that go up and down on a daily basis,” he said.
Public markets have been struggling for years. Renee Jones, a law professor at Boston College who was part of the same panel as Mr. Flatt, said the number of public companies in the United States has fallen dramatically from its peak near 8,000 in 1996 to roughly 4,300 today.
Companies are also staying private for longer, Ms. Jones said, noting the average age of a company launching an initial public offering has more than doubled from seven years in 1996 to 15 years as of 2022.
In Canada, an almost complete lack of IPOs since the frenzy of 2021 has forced private equity investors to re-privatize public companies to generate returns from their holdings. Last week, the Canadian Venture Capital and Private Equity Association said private equity investors made $2.8-billion from 15 exit deals during the first three months of 2024, which exceeded the total exit value for all of 2023 and was driven largely by privatization.
Brookfield itself is looking to dramatically expand its private market presence in the coming years. Shortly after Anuj Ranjan took over as chief executive officer of Brookfield Asset Management Ltd.’s private equity business earlier this year, he set a goal to at least double the size of Brookfield’s US$130-billion private equity portfolio over the next five years.
Ms. Jones said public markets are shrinking and private markets are growing very rapidly, and the biggest concern that raises is about transparency.
“We are seeing more instances of mismanagement and misconduct and even fraud at these unicorns,” she said, using the term for private companies valued at more than US$1-billion. “That doesn’t just impact investors – it also impacts employees and even broader society.”
Mr. Flatt said investors in private markets actually demand – and receive – much higher levels of transparency than public market investors. That is especially the case, he said, in areas such as climate and sustainability-related disclosures.
“The discipline that we have to have for what we are doing to get to net zero, what we are doing on sustainability, how we are reporting it, what information we are providing to them, I would say there is greater scrutiny in private than in the public markets,” Mr. Flatt said.
“When you’re in a room with people on the private side, you can have a full and open and transparent discussion. In public markets, you are set to true and plain disclosure but it is a set of documents you put out and you have to stick with that information, but you can be much more open, transparent and full with investors on the private side.”