Private equity: turning volatility into opportunity

Higher potential returns often found outside the world of listed companies.

- By Kean Tan

Public markets are shrinking. The number of listed companies in the United States, for example, has declined by approximately 40% since the late 1990s. At the same time, companies are remaining private for longer, with the average time to an initial public offering (IPO) now exceeding 10 years.

This means that many of the world's most innovative and dynamic businesses are generating their strongest growth while still in private hands. In 2023, around 85% of US companies generating more than $100 million in annual revenue were privately owned.

It therefore follows that a large majority of high-revenue, high-potential businesses are not yet available through public markets. Private equity (PE) investment provides a way to participate in this early value creation.

This means that investors might be able to gain access to companies that could be scaling globally, refining business models or consolidating leadership positions, potentially long before a public listing or strategic sale.

The current macroeconomic environment in the US, which consists of higher interest rates and tighter liquidity, has made operational excellence more important than ever. Gone are the days when leverage alone could drive returns. Indeed, recently, the lion's share of PE value creation has come from earnings growth, not financial engineering.