Transparency is looking like the real draw when it comes to investing in unlisted businesses.
Much has been written about why investing in privately held businesses is looking so alluring in 2022, especially as asset valuations amongst many of their publicly listed peers continue to look increasingly difficult to justify. However, another key theme we’re seeing developing – and something that sits very much at the heart of the CrowdX proposition – is the idea that privately held companies also have the ability to act with a greater degree of transparency.
Indeed this was illustrated very clearly in a recent survey of Local Government Pension Scheme (LGPS) funds in England and Wales. 91% of those surveyed said their funds were planning on increasing their exposure to private markets in the next five years, with the lack of liquidity offset by the potential for superior investment returns and also providing a valuable element of diversification.
Critically however the survey highlighted that the main reason for this increased interest in illiquid assets was that point about greater transparency. Almost 80% of those interviewed claimed this was a driver behind the evolving investment strategy. That may be at odds with how many would perceive an unlisted company to operate given that by default they aren’t subject to the same levels of scrutiny which are demanded of publicly traded firms. However there has been a step change here in recent years as more of these companies put a greater level of focus on the concept of responsible ownership. Not only does that cover impact on an ESG basis, but it’s also coming with an increased commitment to transparency.
And in a market where businesses are competing for that limited pool of capital, those who hold themselves up to the highest standards will again likely find themselves at an advantage. To help businesses meet these ambitious targets, at CrowdX we’ve incorporated the concepts of transparency and impact reporting at the very heart of both our admissions process and also as a measure to enable companies to continue trading on the platform. We’re being supported by the experts at One Stone Advisors, the highly regarded global ESG consultants, who are helping the CrowdX cohort deliver a robust audit trail of their ESG ambitions and also measure their achievements – a combination that delivers the required level of transparency as well as mitigating any concerns over greenwashing.
A decade or so back, privately held companies would have invariably been considered opaque and the accompanying risk metrics for investing in them would have been significantly higher. It’s clear from the shifting tides that the world has changed.
