MORGAN Stanley’s wealth management arm is giving its clients a chance to buy and sell coveted shares of private companies before they are available to the wider public, as startups weighing initial public offerings (IPOs) increasingly remain private for longer.
The bank’s Private Markets Transaction Desk will assist Morgan Stanley Wealth Management clients seeking to invest in the highly fragmented and opaque market for private shares, according to a statement on Monday (Mar 4). Shares in more than 1,000 so-called unicorns – private companies valued at over US$1 billion – are not available to the general public, the statement showed.
Private market trades let employees and some institutional investors sell their stakes to accredited investors. Though the shares are inherently riskier due to their relative illiquidity, investors have been drawn to them as a way to capture the growth of companies such as Reddit, which is set to go public this month after nearly two decades as a private firm.
“There’s been increasing pressure over the past number of years to get into these companies while the value creation is occurring rather than having to wait until the IPO,” said Kevin Swan, head of private markets solutions at Morgan Stanley Wealth Management. “When investors have a need for liquidity we want to be there to have a solution for them.”
The offering will not be aimed at competing with platforms that already enable investors to buy and sell shares of still private companies such as Forge Global Holdings and Rainmaker Securities. Instead, Morgan Stanley will take an “open and agnostic approach”, working with external platforms as well as its different internal arms to complete trades based on each situation, Swan said.
Private companies such as OpenAI and Elon Musk’s SpaceX have seen their valuations surge, a stark contrast with an IPO market that has been quiet for more than two years. Just US$44 billion was raised on US exchanges over the past two years, a little more than one-tenth of the proceeds raised via new offerings in 2021 alone, data compiled by Bloomberg show.
As the market for startups recovers after the Federal Reserve’s interest-rate hiking campaign, the gap between what private sellers and would-be buyers are seeking has narrowed, according to Michael Gaviser, head of private markets at Morgan Stanley Wealth Management.
“As that happens you will see an exponential increase,” Gaviser said. “What drives the market going forward? That narrowing of the bid-ask spread and people getting more comfortable with the state of the marketplace.” BLOOMBERG
