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Capital Markets' $3.7 trillion-dollar problem
Economic Headwinds Intensify Challenges for Capital Markets
July 10, 2024 | Jason Bennick
"Countries aiming for prosperity don’t just need strong banking systems — they also need strong capital markets."
- Larry Fink, CEO BlackRock
2024 Annual Chairman's Letter to Investors
According to McKinsey’s latest Global Private Markets Review*, private markets entered a slower era in 2023, with macroeconomic headwinds, rising financing costs, and an uncertain growth outlook weighing on fundraising, deal activity, and performance. The global private capital market currently faces a staggering $3.7 trillion in uninvested funds, known as capital overhang. This vast sum represents a significant pool of available capital that has yet to be allocated to any investments. Capital overhang comprises unspent commitments from institutional investors, private equity firms, and venture capitalists, a situation that is worsening–not improving.
The Growing Capital Overhang
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Despite the economic turbulence over the past few years, the issue of growing capital overhang has not only persisted but also intensified. Capital overhang has surged by approximately 30% from 2018 to 2023, creating a significant gap between available capital and viable investment opportunities.
This widening gap between capital market investors and the numerous companies in need of capital but unable to access it, underscores a pressing disconnect in the capital markets financial ecosystem.
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The Impact on IPO Volume
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This situation is further complicated by the declining volume of IPOs on Wall Street.
Over the past five years, the number of IPOs has significantly decreased. In 2018, there were 190 IPOs in the United States, raising a total of $46.8 billion. However, by 2023, this number had dropped to just 80 IPOs, raising approximately $16.1 billion. This downward trend reflects a broader hesitation among companies to go public, driven by market volatility and the rigorous demands of public market investors.​
​The slowdown in IPO activity has profound implications for the capital overhang issue. With fewer high-quality deals reaching Wall Street, the vast reserves of uninvested capital remain untapped.
This lack of quality deal flow is a major factor in the persistent capital overhang. Institutional investors and private equity firms are eager to deploy their funds but are constrained by the scarcity of viable investment opportunities.
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Bridging the Gap
with Commonwealth Capital
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To address this challenge, it's crucial to increase the rate of quality deal flow to Wall Street. This means fostering a robust pipeline of high-quality deals that can attract and engage investors.
Commonwealth Capital, with its innovative Blue Chip Technology Services™ is uniquely positioned to bridge this gap. Our Blue Chip Program™ is designed to create a seamless path for later-stage companies seeking substantial capital on a defined path to IPO.
​​Our streamlined processes and advanced technology solutions enable us to transform promising ventures into investment-ready entities, thus facilitating a higher rate of quality deal flow. Through our Blue Chip Program™, we provide comprehensive support, from financial structuring to regulatory compliance and the design and implementation of advanced technology, ensuring that companies are not only prepared for capital markets but also positioned for sustainable success.
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By unlocking the potential for these companies to access the billions in capital overhang, we are able to drive growth and innovation across various sectors but also open up exciting new possibilities. Our approach addresses the current market inefficiencies and ensures that the global economy can thrive by effectively leveraging available capital.
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Take Action
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If you are a later-stage company or have a qualifying project seeking substantial capital and believe you may meet our criteria, we invite you to visit informational page to discover more about our services.
Contact our organization to learn how we can help you navigate the complexities of capital markets and achieve your financial goals.
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At Commonwealth Capital, we are dedicated to closing the gap between capital overhang and the companies that need it. By fostering quality deal flow and leveraging our expertise in corporate finance, we ensure that the global economy can thrive, one investment at a time.
Sources:
McKinsey & Company. (2024) "Global Private Markets Review."
Preqin. (2023) "Global Private Equity & Venture Capital Report."
Bain & Company. (2023) "Global Private Equity Report."
Renaissance Capital. (2023) "2023 US IPO Market Review."
EY. (2023) "Global IPO Trends Report."