Are the private markets at a tipping point?

In November last year, he says, valuations in both private markets and public markets were at peak levels. But as the first rumblings of economic uncertainty started to emerge, public company valuations – which are marked to market – started to decline.

“The mark-to-market system of valuations in the public markets can create a lot of volatility, which we have certainly seen,” New says. “Private equity investors don’t use that approach, so private equity valuations have taken some time to reset.”

Because the private markets are massively inefficient, pricing ends up a complex exercise, and there isn’t the same rush mentality of buying and selling that occurs in the public equity space. For the past five to six months, New says, putting money to work has been extremely difficult; private markets weren’t reflecting the same value public markets were.

But recently, there’s been a tipping point. Across the private space, companies trying to raise capital are starting to reflect strong discounts compared to previous rounds, and valuations are starting to drift down to levels more similar to public markets.

“It’s a buyer’s market,” New says. “If you have to raise money today, you’ll see deeply discounted valuations, or preferred share terms that are highly beneficial to the buyer.”