JPMorgan Chase thinks it’s found the next hot market for investors: Taking stakes in giant, pre-IPO start-ups from SpaceX to Airbnb.
The investment bank is launching a new team to connect sellers and buyers in the burgeoning market for private company shares, according to Chris Berthe, JPMorgan’s global co-head of cash equities trading. He’s lured Andrew Tuthill, a senior VP from trading platform Forge Global, to head up the new team.
“Many of our clients are looking at this as the next frontier,” Berthe said. “What do you do when markets get so high? You’re going to keep looking at value down the chain, and maybe that means getting involved in companies at earlier stages of their lifecycle.”
More than a decade ago, it was much more common for companies to go public earlier in their development, allowing investors to participate in the rise of winners like Amazon and Google. Then plentiful venture capital funding allowed companies to stay private for years longer, leading to a proliferation of unicorn start-ups. There are now 493 unicorns worth more than $1.5 trillion, according to CB Insights.
But that rise has meant that more investors have been shut out of lucrative gains. Case in point: Shares of Uber still trade below the company’s IPO price from more than a year ago, while Uber’s early stage VC investors have made billions.
That caused institutional investors including hedge funds to ask JPMorgan to source stock in private companies, including the Elon Musk-led SpaceX, Airbnb, Robinhood, Palantir and even TikTok, Berthe said. Tiktok is embroiled in an international controversy over the Trump administration’s demand that it sell its U.S. operations to an American company.
Andrew Tuthill, head of JPMorgan equity private market liquidity (L), and Chris Berthe, global co head of cash equities trading (R).
Source: JP Morgan
At the same time, JPMorgan is seeing more demand from company founders, venture capital funds and wealth management clients to sell their stakes in private companies, he said.
The market for trading private company stock is dominated mostly by boutique brokerages based on the West Coast with names like EquityZen, SharesPost and Forge.
Berthe said he believes that New York-based JPMorgan is the first major Wall Street bank to create a team dedicated to trading private shares. People with knowledge of the operations of Goldman Sachs and Morgan Stanley said that while the firms don’t have dedicated teams, they have been facilitating trades in this market for years. In particular, Morgan Stanley last year acquired Solium, a leading manager of corporate stock plans, giving it access to a wide swath of start-up equity.
Unlike shares in public companies like Microsoft, trading in private company stock is complicated and still mostly the domain of old -school voice trading, versus electronic exchanges that close transactions in seconds. Once a trade is negotiated, JPMorgan has to transfer legal ownership of contracts and get clearance from the start-up, a process that can take weeks.
“The shares are not listed, so whenever an investor buys into those companies, there’s different share classes,” Berthe said. Further complicating matters is that “companies very often include a right-of-first-refusal clause and they can block a transaction between a buyer and a seller for various reasons, generally because of price or because they might have concerns with the buyer.”
Tuthill is tasked with connecting buyers and sellers from across JPMorgan, including investment banking clients, wealth management and trading teams, which should create a deeper market for the asset class.
“Companies are staying private for longer and that dynamic doesn’t look like its changing anytime soon,” Berthe said. “The more the market rallies, the more people are going to want to look at alternatives.”
Facebook ex-HR boss worries grads will miss out due to coronavirus
Fiona Mullan, former vice president of global human resources at Facebook.
LONDON — Graduates are likely to find the workplace “much more challenging” in the wake of the coronavirus pandemic, according to the former vice president of global human resources at Facebook, who said companies are finding it harder to offer them a satisfactory experience.
Fiona Mullan, who spent almost six years at Facebook, said she is particularly concerned that graduates won’t be able to form the same kinds of relationships with their colleagues that they normally would when they enter the world of work.
“We made some of our best friends in that first job,” Mullan told CNBC via Zoom last week. “We did that because we went on holiday together or we went on boozy nights together or … we learned together. That cohort experience for graduates is going to be much more challenging.”
Mullan, who is now chief people officer at cellphone top-up company Ding, said she’s interested to see whether the pandemic ends up diluting company cultures or whether there’s a difference in job satisfaction levels between employees who joined pre-Covid and post-Covid. “How will it be for people who have never been inside an office or met a physical person of the company that they’re going to work for?”
While some industries such as travel and retail have been decimated by the pandemic, tech on the whole has continued to grow, albeit slightly slower than before, said Mullan.
“The tech industry will be better positioned to continue to invest in graduate hiring than other industries,” Mullan said. However, she highlighted that there likely will be fewer graduate roles available at tech companies this year as a result of the virus.
In terms of recruitment, Mullan said social media platforms will continue to focus on hiring engineering talent, moderators, and people with the skills to develop software that can automate moderation.
“They’re building for the future and their appetite for the market’s best technical talent is always a strategic plan,” she said. “If they miss a year, they feel the negative impact of that in future years so they will be keen to continue to invest there.”
Indeed, The Telegraph newspaper on Monday reported that TikTok was hiring a new “university relations recruiter” at its London office to find at least nine people to start work at the company next year. Some of the new recruits will reportedly work on developing the company’s machine-learning software that underpins the app’s recommendation algorithm, while others will work in marketing, content development and creative strategy.
Looking ahead, Mullan said tech firms would likely look to make their finance, legal, and HR teams more “efficient” in the pandemic.
Chris Bray, a recruiter at Heidrick & Struggles who helps U.S. tech giants to find talent in Europe, agreed that strategic decisions around recruitment were now being made, after a difficult period earlier in the year.
“At the outset of Covid, we witnessed a semi-paralysis amongst many large players, with spending reined in and recruitment strategies put on hold,” he told CNBC.
However, he added: “Over the past quarter, a definite pattern has emerged now that uncertainty is the new-normal and a number of companies have thrived during their first six months in a Covid economy, they are starting to make braver moves and we are seeing a lot of more strategic decision making.”
Hong Kong book closed early due to strong demand
The Ant Group Co. logo is displayed at the company’s headquarters in Hangzhou, China, on Monday, Sept. 28, 2020.
Qilai Shen | Bloomberg | Getty Images
GUANGZHOU, China — Ant Group will close its Hong Kong institutional book building process a day earlier than expected due to strong demand for its record initial public offering (IPO), a person familiar with the matter told CNBC.
The Chinese financial technology giant is carrying out a dual listing in Shanghai and Hong Kong, issuing an equal number of new shares in each location.
Ant Group’s listing will raise a total of just under $34.5 billion, making it the biggest IPO of all time. The Hong Kong portion will raise around $17.24 billion, before a so-called overallotment option is exercised.
Of the Hong Kong shares issued, 97.5% will go to institutional investors.
According to the source, who was not authorized to speak publicly, the book building will now close at 5 p.m. Hong Kong time on Wednesday, instead of Thursday at 5 p.m. as expected.
A book building process is a period during which investors indicate their interest in an IPO, and submit the number of shares and price they want to subscribe to. If demand is high, the book can be closed early.
Ant Group declined to comment when contacted by CNBC.
Ant Group priced its Shanghai-listed shares at 68.8 yuan each and its Hong Kong shares at 80 Hong Kong dollars.
The company’s Hong Kong shares are slated to begin trading on Nov. 5 with the Shanghai portion expected at the same time.