2023’s turbulent public market performance will live long in the memory. Global IPO activity took a nosedive while many firms suffered a drop in valuations.  

With public market confidence so low, the question of whether IPOs and valuations will rebound and to what degree is on everyone’s minds as we enter the new year. Meanwhile, private markets have made significant leaps forward in the past 12 months, becoming more sophisticated than ever and offering deepening liquidity, increased funding, and improved technology.  

Here at Globacap, we have a unique perspective on these trends as we work extensively with exchange groups and private markets investment managers. We take a look ahead and make a few predictions for private markets in 2024.  

More private equity firms will trade private market secondaries 

Private equity firms have faced the worst year in a decade for selling portfolio companies and struggled to monetise their investments and return money to investors. As a result, PE firms have increasingly turned to secondary trading in private markets, where they’re able to achieve early exits, liquidate assets, and rebalance their portfolios. 

The market volume has grown exponentially in recent years, increasing from $25bn in 2012 to $105bn in 2022. A key enabler of this growth has been new technology which has digitized and automated secondary liquidity in private markets. Private assets, from shares in private companies to units in private equity managers, can now be transacted and settled almost as efficiently and seamlessly as public markets. What was previously a core advantage of being public is quickly becoming matched by private markets as the number of active players in private secondary markets increases. In 2024, especially if IPO volume remains weak, we expect more PE firms to trade private market secondaries to attain quicker exits, offer returns to limited partners, and boost overall performance. 

Financial institutions will prioritise the adoption of tokenization

Digital assets have had a turbulent 12 months, wracked by multiple bankruptcies, fraud cases, and regulatory actions dampening enthusiasm. However, the finance industry continues to explore Web3 opportunities, especially tokenization which can deliver greater interoperability and control to investors, particularly in private markets. Tokenizing real-world assets, like real estate, private equity, and private debt, could improve access to those markets and make trading much faster and simpler. However, because tokenization only applies at the point of transaction, to make it a reality we need to first focus on digitizing and automating private markets’ infrastructure. 

The technology now exists to digitise private securities end-to-end, and fully automate the processes involved in settling private markets transactions, even including high friction points such as stamp duty and stock transfer forms. Once a private market asset has been digitized and connected to automated workflows, then tokenization can be overlayed on top, enabling highly efficient transfers which can potentially transform private markets.  

Another key issue in the digital assets market is the ability to exchange data and assets between platforms, or interoperability. The EU Commission recently identified a lack of interoperability as one out of the seven “most significant obstacles” to establishing a strong digital economy. Financial institutions continue to struggle with transferability between isolated platforms and siloed infrastructure. Happily, there have been a few positive developments this past year to improve upon this, such as the FCA’s Regulation of Digital Assets Bill and the HM Treasury Digital Securities Sandbox (DSS). Both of these smart frameworks will facilitate the testing and adoption of digital asset technology across financial markets and aim to help all parties work together in tandem to build a truly connected and efficient ecosystem. 

The Technology Working Group of the UK’s Asset Management Taskforce’s recently published roadmap for the implementation of fund tokenization is another important step in setting out how fund managers can innovate with tokenization successfully and securely, as well as encourage standardisation and collaboration. In 2024, we expect to see a big focus on standardisation and more institutions agreeing to use traditional existing financial networks, rather than perpetuating ‘digital islands’, to bring this technology into the private markets space. 

Exchanges will adapt to the rise of private markets 

Public markets struggled in 2023 with IPO activity dropping off a cliff. Global IPO volumes fell 5%, with proceeds down by 32% YoY in the first nine months of 2023. Public market confidence has stalled, and firms are choosing to stay private for longer, or even delisting. Those that have listed in recent months, like Birkenstock, Instacart, and Klaviyo, are seeing poor returns, forced to trade below their IPO price.  

Meanwhile, private markets have made huge strides forward, functioning quicker, more efficiently, and at a greater scale than ever before. With an estimated AUM of US$22.6 trillion which is set to grow, private markets are closing the gap to public markets, offering increased funding, deepening liquidity and improving technology. 

Exchanges across the globe will need to focus on adapting quickly to the challenge or risk irrelevance. Some already have, such as the Johannesburg Stock Exchange which has seen more open interest in its private placements venue in the last 12 months than in its public market over the same period. Even when IPO volumes rebound, exchanges that don’t have private markets as a core part of their strategy risk resigning their role as hubs of capital formation.   

Fintech solutions with top tech will attract VC funding

The fintech and tech sectors have experienced falling valuations and significantly reduced investor interest this year. This is due to macroeconomic risk factors, such as escalating geopolitical tensions, rising interest rates, and record-high inflation, as well as a crisis of confidence brought on by the collapse of Silicon Valley Bank (SVB) and the bankruptcy of FTX. The latter in particular highlighted just how loose many VCs had become with their risk tolerance, and as a result, LPs across the world started putting more pressure on the VCs to mandate stricter governance procedures. This has led to a slowed LP funding pipeline for VCs and reduced funding for fintechs. 

Access to funding is difficult for all high-growth fintechs and tech companies now in general, but with such a dry environment firms will be searching hard for any capital they can get their hands on. While some will fail or be bought out, the fundamentals of fintech remain strong and will continue to attract investment (albeit at a different level than the highs of 2021-2022). There have been some shoots of recovery in VC funding, recovering from a low of $11.9 billion in Q4 2022 to $14.8 billion in Q2 2023. Fintech solutions that offer a strong product story, top technology, great people and a solution which solves a genuine market need will continue to attract investors and drive the industry forward.