JPMorgan's OpenAI coverage Is Just the Start

THE TRICKLE WILL soon be a flood. Wall Street banks are starting to cover firms that are not publicly traded.

- Bloomberg

JPMorgan Chase & Co. kicked off the trend with a report on OpenAI Inc. Citigroup Inc. followed suit a week later with a list of roughly 100 large private companies it will focus on, predominantly in the tech sector.

It's only a matter of time that their peers join the ranks. With the US stock market at a record high, investment banks are keen to arrange secondary share sales for the hottest unicorns. Brokerage fees aside, they will have direct access to start-up employees who want to divest their stakes. Banks' wealth managers, in turn, can offer services to these newly minted billionaires when they cash out. It's a lucrative business for all.

But when brokers dangle shares of, say, OpenAI or SpaceX to investors, they run into a big problem. Even the most savvy money managers may not have a clue what a fair price should be, especially when news reports of company valuations jump around so much. OpenAI, for instance, is in talks about a secondary sale at a valuation of $500 billion. Only four months earlier, it was seeking $40 billion in new funding, valuing the company at $300 billion.