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US IPO Market 'Structurally Broken,' Expert Warns
10 Jun
Summary
- IPO market remains broken for sponsors, with fewer public companies.
- Most private equity investors won't rely on IPOs for returns.
- Continuation funds are a permanent feature of the market.
The pathway for closely held companies to go public in the United States remains significantly obstructed, even with major entities like SpaceX and OpenAI preparing for substantial stock offerings. Jeffrey Perlman, CEO of Warburg Pincus, stated that the IPO market is "structurally broken for sponsors," noting a substantial decline in public companies over the past ten years.
Perlman indicated that a majority of private equity investors will not be able to rely on IPOs to achieve better returns. He shared that over 60% of Warburg Pincus's exits in the last four years were acquisitions by strategic buyers. Consequently, many buyout firms will continue to depend on continuation vehicles, a mechanism allowing assets to be rolled into new funds.
He further elaborated that continuation funds are anticipated to be a permanent aspect of the market moving forward. The recent announcements of large IPOs from companies such as SpaceX, OpenAI, and Anthropic are expected to influence the market by necessitating capital reallocation within investment funds that mirror stock indexes, requiring sales of other stocks to purchase these large new additions.
