Key Highlights

  • The number of publicly listed companies in the US has halved since the start of the century, even as SpaceX's IPO valued the company at more than $1.8 trillion
  • Private equity has grown from a $500-600 billion industry in the early 2000s to $7.6 trillion in 2022, providing companies a flexible alternative to public listings
  • Harvard researchers argue the economic weight of US public companies has not declined, with market capitalization, profits, revenues and employment all up over the past three decades
  • UK pension funds have cut their allocation to domestic equities from 32 percent to under 2 percent by 2023, partly due to accounting rule changes affecting how pension deficits are disclosed

SpaceX's Record IPO Reignites Debate Over Shrinking Public Markets

Policymakers across the developed world have long expressed concern over the shrinking number of publicly listed companies, as initial public offerings have grown scarcer and existing listed companies have been thinned by takeovers, often led by Private Equity firms. The trend has been most pronounced in the US, where the number of listed companies has halved since the start of the century. But SpaceX's initial public offering — the largest the world has seen, valuing the rocket company at more than $1.8 trillion — has raised fresh questions about whether the long-running IPO drought may be ending, with other prominent AI companies expected to follow suit as capital spending on data centres accelerates Demand for fresh equity.

The rise of private markets has provided a flexible alternative to public listings in recent decades, with private equity growing from a $500-600 billion industry in the early 2000s to $7.6 trillion in 2022, according to a major consultancy. As a result, unquoted companies have increasingly chosen to remain private for longer.

Researchers Question Whether Deregulation Addresses the Real Problem

On both sides of the Atlantic, policymakers have responded to the shrinking pool of listed companies by loosening Listing Rules to reduce the costs and disclosure burdens associated with going public. Harvard academics have argued this response reflects a misdiagnosis, pointing out that the economic weight of US public companies has not halved even as their numbers have — stock market capitalization, profits, revenues, Investment and employment have all increased substantially over the past three decades. Their research suggests policymakers are too focused on deregulation, when the decline in listed company numbers partly reflects industrial concentration stemming from loose competition policy rather than excessive regulatory burden.

The situation in the UK differs meaningfully from the US, with market Capitalization relative to GDP in decline and the stock market notably less buoyant. UK pension funds, once major domestic buyers of equity, have cut their allocation to UK equities from 32 percent to under 2 percent by 2023, a shift partly attributed to accounting rule changes requiring companies to disclose pension fund deficits as Balance Sheet liabilities, prompting finance directors to favor lower-risk bond portfolios instead.

Enterprise, Not Deregulation, May Be the Better Policy Focus

A researcher at a UK-based investment consultancy has argued that the balance of Capital Markets has shifted from primarily raising money toward refinancing and capital redistribution, suggesting the primary equity market functions as a relatively minor part of a much larger financial ecosystem spanning currency, derivatives, debt, repo, insurance and commodities markets. Separate research from the London School of Economics found little evidence of a broader funding gap facing British firms.

Economic historian John Maynard Keynes long argued that enterprise, not thrift, ultimately determines whether Wealth accumulates or decays within an economy. Drawing on that framework, the analysis suggests policymakers would be better served focusing on tax and planning reform to encourage genuine enterprise activity, rather than pursuing further financial deregulation or a Race to the Bottom in corporate governance standards in pursuit of protecting London's position as a global financial centre.