Pricing. Let’s cut to the chase here: Prices are higher in private markets. Is it related? like. This is certainly something to keep an eye on, especially if one considers it a sign of ‘top of the market’.
Now for some perspective: Prices are expensive everywhere – public markets, gas stations, grocery stores. This is a trend in private markets that started almost a decade ago and continues. Today, private market multipliers are at or above all-time highs. And while they remain well below public market multiples and have a relatively high equity cushion, pricing predominates in private markets.
However, pricing is just one factor in the investment dynamics of private markets. Remember, the fundamentals of private markets are 1) buying, 2) growing/growing/improving/fixing, and 3) eventually selling to private companies. Private markets operate on that sweet spot between buying and selling, using time and the general partner’s ability and expertise to create upward value. Clearly, while the price at which a company is purchased plays an important role in the investment equation, it is not the only determinant of the outcome.
Finally, let’s not forget the proactive, control-oriented investment strategy of private investment versus a more passive public market context. This is why investors in the private sector can “control their own destiny” with the final investment results. In fact, our data shows that the vast majority of investment returns aren’t driven by the low-selling high mantra — they’re driven by good old-fashioned earnings growth.
Display. With that as a background, let’s acknowledge that when investors ask about pricing, their primary focus is, and should be, around performance. After all, performance is largely the reason why investors invest in private markets. And private markets have delivered (and then some).