Many global investors are turning toward Silicon Valley instead of Wall Street in search of returns.
last year and continues to break multi-decade records this year. In the first half of the year, total investments in venture capital hit a 19-year high of $53.3 billion, according to data from Refinitiv published last week. That marked a 21% increase by total dollar amount compared to the first half of 2018.
Analysts say the trend is largely the result of relatively lower expectations for Wall Street investments such as stocks or bonds. As the trade war between the U.S. and China escalates and economic indicators weaken, investors have fled to safer assets such as Treasurys. The 10-year Treasury note fell below 1.7% Monday.
Meanwhile, there has also been a contraction in the total number of public companies. Part of that is due to mergers and consolidation, but Klempner said managers — not just investors — tend to prefer private ownership, too. They're able to operate "outside of the quarterly spotlight or the glare of public markets," and often take a longer-term view, he said.
Another factor fueling the growth in private equity is acceptance and usage of secondary markets for investors to get liquidity. In traditional stock markets, it's easier to buy and sell your stake with the click of a button or calling your broker. And there are plenty of buyers on the other side. McKinsey's Klempner called it a snowball effect. As secondary markets get deeper, the extent of the discount investors would need to sell a stake in a privately owned company is much less painful than it was a few years ago.
Still, some analysts have pointed to potential negative effects in the shift to private markets. There is potential for less lmore volatility, and retail investors may have fewer high-growth opportunities as companies opt out of listing on exchanges.
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