Initial public offerings are becoming less of a boon for investors as companies increasingly stay private for longer, according to Morgan Stanley. Over the past two decades, the average private company has stayed private for roughly 11 years before opting for an IPO, according to Morgan Stanley equity strategist Edward Stanley. That's up from a median age of eight years previously.
Instead of getting a young company with a lot of growth ahead, IPO investors are getting stocks that are already near the top of their valuations, Morgan Stanley argues. We "see more value creation occurring pre-IPO as these companies stay private for longer," wrote Stanley in the report, pointing out recent examples in Snowflake and Airbnb where their current market valuations are not too far from or lower from where they were when they went public. Snowflake shares are down 46% as a public company and Airbnb is up just 4% as a public stock, per Factset.
The Renaissance IPO ETF , which track the value of recent public offerings, is up about 13% this year, badly trailing the 18%-plus gain in the S & P 500. Stanley, who's based in London, isn't alone in his assessment. Experts say that despite barriers to investment — like high net worth standards and regulatory scrutiny — the shift to private markets is hard to stop.
"It's a more liquid market and a lot of that breathtaking growth [for older companies] that went public in the first five years, now investors are able to get it through the privat.
