Private Market Activity Picks Up In 2024, But Growth Lags Behind S&P 500, Nasdaq Composite

Author: Natan Ponieman | July 13, 2024 09:52am

The interest in AI that led the stock market rally over the first half of the year was replicated in private market transactions.

Actively-traded companies within the private market are showing an uptick in trading activity, although IPOs continue to lag behind pandemic-era numbers.

The first half of 2024 was a relief for investors in the private market as activity picked up from the stall that marked the previous two years, with assets delivering positive returns with relatively low volatility, according to a new report by Forge, a private market analysis firm.

The Stock Market Outperforms Private Markets By Threefold: For the first six months of the year, the Forge Private Market Index grew 5.4%, about a third of the rate of growth of the S&P 500 in the same period. The latter added roughly 15% during the first six months and was up 19% since January by midday Friday.

In June, this difference became more noticeable, with the private market index losing 0.2% and the S&P 500 up by 3.47%.

The S&P 500 is closely monitored through ETFs such as the SPDR S&P 500 ETF Trust (NYSE:SPY), Vanguard S&P 500 ETF (NYSE:VOO), and iShares Core S&P 500 ETF (NYSE:IVV), which provide various avenues for investment in the S&P 500’s comprehensive performance.

The private market fund is also lagging behind the Nasdaq Composite, which added 21% in the first six months and is now up by 25% since January.

Private markets, however, performed better than the Russell 2000, which ended the first half of the year with less than 1% growth. 

The Russell index had an uptick this week of 5.6% after lighter-than-expected inflation data put attention back on small-cap companies, which are more sensitive to interest rates than large- and mega-cap corporations.

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AI continues to dominate the investment narrative in the private sector as well. A $6 billion Series B raise by Elon Musk's xAI was a semester highlight, along with BlackRock Inc's (NYSE:BLK) acquisition of Preqin for $3.2 billion and AlphaSense's acquisition of Tegus for $930 million.

The 3 Best-Performing Unicorns: 

• The private market index has been led in the first semester by Lambda Labs, a company that offers on-demand cloud computing for the AI sector. The company became a unicorn earlier after raising $320 million in February and is currently raising another $800 million. The index shows a 448% year-to-date return for Lambda Labs.

• The list is followed by Cerebras, a chipmaker that reached unicorn status in 2018 and is in talks for an IPO this year. Cerebras shows a year-to-date return of 183%, according to Forge.

• Elon Musk's Neuralink, which is exploring computer-brain interfaces, is third on the list with a 110% return year to date. The entrepreneur said on Thursday that the company could achieve 1,000 brain chip implants by 2026.

IPOs Excitement Is On The Rise: There have been 95 IPOs since the start of 2024, putting it on track to surpass the 154 IPOs in 2023 and the 181 in 2022.

The rate of IPOs is still far behind the most recent peak, which exceeded 1,000 IPOs in 2021.

Companies like Stripe, Databricks, Fanatics, Chime, Klarna, and Liquid Death remain in investors’ sights for upcoming debuts.

The prospect on IPOs will likely be affected by Fed decisions on interest rates. 

With June's 3% inflation rate showing a substantial improvement from May's 3.3%, investors from both the private and public markets are gaining confidence in a potential drop in interest rates in July.

One pundit, however, said Thursday that June's data is still not enough to convince Fed Chair Jerome Powell to drop interest rates at the next FOMC meeting.

How To Measure The Private Market's Performance: Private market transactions involve the purchase and sale of shares from companies that are not publicly traded. As such, the private market is harder to track than the stock market, as information on trades is not publicly available.

Some firms that track private market data can shed light on the trends influencing buy-and-sell decisions for companies outside the stock market. These insights are based on indexes created with specific criteria to track the overall market's performance.

Forge's Private Market Index measures the performance of U.S.-based, venture backed, late-stage companies relative to other asset classes.

According to the firm, "companies are selected for index inclusion based on a proprietary scoring model which incorporates key pricing and liquidity information such as closed trade prices, volume, and bid/ask pricing indications."

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