Big companies stay private because they no longer need public money
Going public once bought capital and prestige, and now it mostly buys quarterly pressure and compliance costs.
Invest Like the Best with Patrick O'Shaughnessy · Investing a $120 Billion Balance Sheet with No Outside InvestorsThe three or four largest private companies have grown so large that if they went public this year or next, they would become three of the 10 largest public companies. That has never happened before, says the chief investment officer of Liberty Mutual Investments, who oversees about $120 billion for Liberty Mutual Group, one of the world's largest and most diversified insurers.
For decades, a company went public for a specific reason. It needed a large sum to expand that private investors could not supply, because private markets were too small and undeveloped.
Going public also carried prestige. It was treated as a rite of passage, a public signal that it had arrived.
The tradeoff was control. A newly public company gave up freedom to plan years ahead and to wait out rough patches, because listed investors and directors respond quickly when results slip. He compares it to housing: "you don't think about the value of your house every day, even though it changes hourly every day," but if you own a property fund that trades publicly, you probably check the price every day and react to it. The underlying exposure is similar, but the experience of holding it is harder.
Private markets have now addressed the old reasons to list, in his view. A private company can now collect enormous sums, so the funding gap is gone. The status value has faded, because these private giants are already well known.
What remains are the costs of being public. There is the literal cost of compliance, plus the pressure over how to run the company. Many businesses can operate quarter to quarter or year to year, but some need a three to five year window to build through a rough patch, and public markets very rarely give them that.
His conclusion for investors is to start with the equity risk they want, and then choose the vehicle that captures it. Regulation might ease, but the availability of private capital is likely to stay, so this balance between public and private will persist.
Questions people ask
If a company stays private, where does all that big money come from?
Mostly from pension funds, endowments, insurers, sovereign wealth funds, and wealthy individuals, who invest through private equity and private credit funds. Those funds have grown much larger over the past 15 years, so they can write checks that once required a public stock sale. The tradeoff is that the money is usually locked up for years.
What makes public markets so hard to hold?
Prices are visible every second and investors react quickly to earnings, headlines, and guidance. That can force managers to focus on the next quarter rather than a plan that takes three to five years to work. Private holdings are valued less often, so managers and backers can more easily wait out a rough patch.
What are the compliance costs of being public?
Public companies must file regular financial reports, disclose major risks and events, maintain internal controls, and face shareholder votes, lawsuits, and regulatory scrutiny. That means more lawyers, accountants, and management time than a private company typically needs. For smaller public companies, those fixed costs can be especially heavy.