The US stockmarket has always “offered a way for the average investor to buy into the country’s fastest-growing companies”, says The Wall Street Journal’s Maureen Farrell. This helped spread America’s wealth around.
But these days ordinary investors are having more and more trouble getting their hands on the country’s most promising firms: a new generation of companies is “shunning” public markets. The number of listed US firms has slumped by around a third since 1997. There are now around 5,700, barely more than in 1982, when the economy was less than half its current size.
Record levels of mergers and acquisitions have reduced the number of public companies, while investment funds seeking higher returns in an era of record-low yields are increasingly willing to hurl money at private firms – so the latter needn’t go public.Private funding markets have become more transparent, while firms that stay away from the stockmarket also avoid having to come up with an earnings report every quarter – along with the constant clamour among investors for a short-term boost to the stock price.
The upshot of this trend is a “bifurcated” equity market, with some investors in a position to access promising new players on the private market “and a public one that is more of a last resort for companies”.