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Private equity trading today is probably where the public markets were 50 to 75 years ago in terms of the amount of manual processes, speed and opacity.
Tom Callahan, CEO of Nasdaq Private Market (NPM), has gone so far as to say that the process of buying shares in a private company is more akin to buying a co-op apartment in New York than buying shares in a publicly traded company.
This archaism is poised to change as data and technology providers like NPM work to provide more investor participation and access to the pre-IPO market, which often sees the fastest growing stories.
“We can streamline and expand” trading in private markets, Callahan said during an interview with Larry Tabb, head of market structure research at Bloomberg Intelligence, as part of the Securities Dealers Association’s (STA) annual market structure conference ) on October 13.” We will never take it where the public markets are. But if we can cut the friction in half or three-quarters, it can be [even more] investment asset class.’
“We feel this is an asset class poised to grow,” Brett Mock, senior vice president and head of global capital markets at NPM, said in the same interview. “This is the last unpaved road of stock market infrastructure.”
NPM has been incubated within Nasdaq since 2013 and spun off as an independent company last year. However, Nasdaq remains a large shareholder.
The need for better trading in private markets came into focus with the Getting Our Businesses Started (JOBS) Act of 2012, which encouraged companies to stay private longer. Since then there has been a boom in private companies. The universe of “unicorns,” private companies valued at more than $1 billion, has expanded from 15 a decade ago to more than 1,200 today, Callahan said.
Employees of private companies need liquidity, as do outside investors. “Traditionally, there hasn’t been a platform that allows these two components to meet in a way that is transparent, regulated, standardized and reliable,” Callahan said. “Our mission is to provide liquidity in the private markets.”
NPM has improved data, information flow and technology in private markets. In addition to Nasdaq, NPM has attracted banks including SVB, Goldman Sachs, Morgan Stanley, Citi and Allen & Co as investors and strategic partners. “The goal is to transform the private markets from a fragmented and siled environment, where price discovery remains confined to certain brokers, to a system with widespread information dissemination and access,” Mock said.
“We want to partner with the biggest banks in the world — to leverage their distribution and brands and the ability to raise capital,” Callahan said. “We are a technology provider, we are a marketplace, we are a platform. We’re trying to reduce friction, not monetize friction through technology.”
NPM has facilitated almost $50 billion in private market transactions since its inception, Callahan said. Despite market conditions in 2022, the long-term outlook remains strong.
“This is a market here to stay, and the industry needs a market center to drive price discovery and liquidity,” Mock said.
“This is a story of an asset class coming of age,” noted Callahan. “The world’s largest banks are making huge investments in their private market infrastructure. And so we think that’s a big part of the story and why we’ve joined the banks, because they really are the future of private markets.”