Hello and welcome. You are listening to Patrick Boyle on Finance, a podcast exploring ideas from quantitative finance, examining events occurring in markets right now and financial history to see what lessons can be taken away, including interviews with some of the most interesting people in the world of finance. To learn more about the podcast, visit onfinance.org.

Over the past 20 years, the number of companies listed on the US stock market is almost half.

The world's largest most liquid public equity market would appear to have lost its shine.

Institutional investors have been piling into private markets instead, in particular venture capital, private equity and private debt.

The Financial Times reported last week that the size of the private capital industry has now reached $7.4 trillion,

15 times the size it was in 2000. The industry is expected to reach 13 trillion in the next

four years. For the Elon Musk fans out there, $7.4 trillion is roughly around the value of a trillion

hamsters.

On top of this, a boom in share buybacks where companies purchase their own stock as an alternative

to paying dividends has further reduced the number of shares outstanding from the remaining

public companies. Historically low interest rates have compounded the trend, tempting companies to raise cheap

debt rather than to sell equity. The way things used to work was that companies followed

a path of starting out small funded by the founder's own capital. As the company grew,

it might raise debt financing or take a bank loan.

And once they'd proved themselves but still needed additional capital to grow, companies would go public via an IPO.

The capital raised in an IPO gave the firm permanent capital.

Once a company is exchange listed, investors

can buy and sell the stock as they see fit and shareholders receive any distributions or dividends

paid out by the company. If the company needs more equity capital at some point in the future,

being exchanged listed, they can simply issue

additional shares in what's known as a secondary or follow-on stock offering.

Exchange traded companies allow retail investors to own a piece of fast-growing businesses

...