Private Equity’s $3 Trillion Burden Sparks Hunt for Exit Options

As the market for initial public offerings bounces back after two lifeless years, investors who’ve been impatiently waiting for their payoff are finally getting some returns.

But the revival hasn’t come fast enough: Behind the scenes, the private equity shops saddled with bulging portfolios — and the banks and exchanges that make millions helping companies go public — are still scrambling to come up with alternative exit strategies.

Some are turning to private sales of shares, while others are establishing new semi-public exchanges to tempt companies to market. Inside at least one buyout firm, executives want to rejig long-accepted investment frameworks to address the new reality.

The reasons: A return to true health in the IPO pipeline could take until next year, and a record $3.2 trillion was tied up in aging, closely held companies at the end of 2023, Preqin data found. That’s a problem for private equity, which relies on the cycle of raising money to make acquisitions, exiting via a sale or IPO and then returning money to investors — before ultimately asking for more funds to do it all again.

At the same time, startups are staying private for longer, stranding everyone from employees holding small stakes to investment firms with billions of dollars tied up.

All of them are trying to answer the same question: is there really an alternative to the time-worn path of taking a company public?

“We’re seeing evolutionary forces at work now after a couple of really tough years,” said Kelly Rodriques, chief executive officer of Forge Global, a market infrastructure and data provider that runs a private trading venue. “There will always be a place for a public market exit, but the systems that are being built enable them to have a private life that’s as long as they want.”