The successful launch of the Merian Chrysalis Investment Company, which raised £100m in tricky markets this month, has heightened the debate about investing in private companies.
The new trust will invest in later stage private companies, an investment class that has traditionally been difficult to access for many investors.
It will initially target investments in seven to 15 holdings, so the company specific risk will be relatively high.
It comes at a time when the number of companies listed on public markets continues to decline. Over the last 20 years the number of US-listed companies has fallen by 45 per cent.
In the UK, if we exclude the Alternative Investment Market, the shrinkage has been 57 per cent.
Clearly, mergers and acquisitions have played a part here as the size of the average company is much larger - witness the circa $1trn valuation of Apple.
At the same time, private companies have remained private for longer. Over the same period the average age of companies seeking an IPO in the US has lengthened from seven to 12 years.
Many of these private businesses are technology-enabled disruptors which are often less capital intensive than traditional enterprises.
With access to sufficient capital from Silicon Valley, sovereign wealth funds and venture capitalists there is often no desperate need to tap into public markets. And where there may historically have been an element of prestige in attaining a stock market listing, the attitude of some chief executives may now be that it’s not worth the cost and the regulatory hassle.
The upshot of this is that many companies are having a major growth spurt before listing, which may equate to twice the level of growth achieved after IPO.
Globally, there are now fast approaching 300 start-up private companies with a valuation of more than $1bn (£778.5m), commonly known as unicorns (or decacorns at $10bn plus and hectocorns at $100bn or more).
Collectively, they are valued at around $900bn. To put that into context it’s equivalent to a third of the value of the UK-listed equity market.
So it’s a large opportunity set, with companies with exciting growth potential and, needless to say, far greater potential risks.
Given the likelihood that these trends will continue, it seems inevitable that additional large active managers will move into the space.
The cynic in me says that this is an inevitable consequence of the inexorable rise of passive investment which I also expect to lead to greater interest in mid and small-cap companies over the coming years.
But for smaller investors the permanent capital structure of an investment company is not only well suited to investing in illiquid assets, such as private companies, but is also one of the few ways in.
The available choice of pure plays is somewhat limited and Merian joins just two trusts that invest predominantly in minority investments in private companies, namely Woodford Patient Capital and Augmentum Fintech.