The U.S. IPO markets are stagnating and they are in need of regulatory reform.
Today, the Committee on Capital Markets Regulation, which includes representation from leading academics and the country’s largest banks, asset managers and hedge funds, is releasing a report on the declining attractiveness of U.S. public equity markets.
According to Hal S. Scott, director of the Committee and professor of international financial systems at Harvard Law School, “Our report shows that private companies are increasingly avoiding U.S. public markets. This is a serious problem because a weak IPO market creates a significant drag on U.S. economic growth. The prospect of a public market exit is crucial to the formation of start-ups which fuel such growth.”
The Committee’s report also finds that, by contrast, the public equity markets of China, are increasingly attractive thereby aiding their economic growth.
On the other hand, the report finds that U.S. private markets are strong, as the amount of equity capital raised privately each year is increasing and the number of young private companies with a valuation exceeding $1 billion is at a record high. This is some consolation for the weakness of the public markets, but the Committee believes both need to be strong.
“One problem with an increasingly private market is that U.S. retail investors do not have an effective way to directly invest in these young and exciting companies, including Uber and Airbnb,” says John Gulliver, the Executive Director of Research at the Committee.
The Committee’s report also finds that U.S. securities class actions that cost public companies and their shareholders billions of dollars each year are increasingly common and costly.
The Committee recommends that the SEC take two immediate actions to reinvigorate our stagnating public equity markets.
First, the SEC should work with young private companies to better understand why they are avoiding public markets and whether regulatory changes could incentivize them to go public.
Second, the SEC should not block the ability of U.S. shareholders to adopt mandatory arbitration agreements to avoid costly and ineffective U.S. securities class action suits.
According to Scott, “The SEC is well positioned to fix the securities class action problem that has plagued U.S. public equity markets for far too long. This is an exciting opportunity for U.S. investors and public companies.”
The full report can be accessed here.
Press inquiries may be directed to the Committee’ Executive Director of Research, John Gulliver at: firstname.lastname@example.org.