(Bloomberg) -- Stack Capital Group Inc., an investment firm that’s targeting retail shareholders, is looking to buy more stakes in late-stage unicorns that could list in the coming months as the market for initial public offerings is thawing.
The Toronto-based company, which went public in 2021, promises individuals who buy its shares access to privately-held businesses, including Elon Musk’s SpaceX. Stack’s goal is to have 10 to 15 businesses in its portfolio, focusing on technology companies that are valued at $1 billion or more and that could go public within the next six to 30 months, Chief Executive Jeff Parks said.
The company is scouting in areas such as space, communications, travel and leisure, robotics, cybersecurity, insurance, e-commerce and banking, according to Parks.
“Our value proposition is to get you into those private companies. And then when they go public, we generally sell those down and rotate that capital right back into the private markets,” Parks said.
A more stable outlook for interest rates, following multiple hikes by central banks around the world is leading private equity investors to review their assets and reprice them as needed, resulting in new bids in the private markets and a restart of the IPO pipeline, according to Parks. “The velocity of capital will increase with companies coming public,” he said.
Arm Holdings Inc., the chip-designer owned by Japan’s SoftBank Group Corp., on Tuesday submitted the paperwork for its long-awaited IPO, and there are other companies looking to make the move. Grocery-delivery firm Instacart Inc., marketing and data automation provider Klaviyo Inc. and internet startup VNG Ltd. are among those that have already filed for an IPO.
Stack raised C$110 million ($80.5 million) as part of its listing and has spent about 70% of that on stakes in eight private companies, including SpaceX, Locus Robotics Corp. — a robotic process automation business — and travel firm Hopper Inc.
Unlike in an illiquid fund, Stack shareholders can exit their investment whenever they want by simply selling their stock, Parks said. The company has about 9.2 million shares outstanding. Its share price has declined 34% since the company went public, closing at C$7.20 on Wednesday.
There is sizable interest from private equity-owned businesses to tap individual investors, but “figuring out how to access retail money is a challenge,” said Steven Kaplan, a professor of entrepreneurship and finance at the University of Chicago’s Booth School of Business. Among those challenges are liquidity, fee structures and the selection of targets, he said.
The plunge in Stack’s shares could provide an investment opportunity, Kaplan said, especially if the stock is trading at a discount. Stack says the book value of its shares is C$11.17 each, including C$8.05 in the companies it invested in and C$3.12 in cash.
Private equity assets are expected to return more than any other major asset class in the coming 10 years, averaging 8.8% per year, according to the Horizon Actuarial 2021 Survey of Capital Market Assumptions. Expected returns for the next 20 years are 9.7% per year, also higher than any other asset classed surveyed.
Individual investors hold roughly 50% of the estimated $275 trillion to $295 trillion in global assets, according to a February report by Bain & Co. Yet those same investors represent just 16% of assets held by alternative investment funds, the report said, adding that private markets “are out pacing public returns over every time horizon.”
There are other companies that pursue similar strategies, such as Berlin-based Moonfare GmbH, a direct-to-consumer platform that offers self-certified investors access to private equity funds by pooling investments, including through partnerships with fund managers such as KKR & Co., Carlyle Group Inc. and Khosla Ventures LLC.
“There’s a lot of wealth creation going on in private markets which a lot of people just don’t have exposure to,” Park said. “We’re trying to break down barriers for people where they can have a part of that pie in their own portfolio.”
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