JPMorgan Pursuit 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 duo to connect sellers and buyers in the burgeoning market for private company shares, according to Chris Berthe, JPMorgan’s worldwide co-head of cash equities trading. He’s lured Andrew Tuthill, a senior VP from trading platform Forge Wide-ranging, 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 deal ins get so high? You’re going to keep looking at value down the chain, and maybe that means getting involved in parties at earlier stages of their lifecycle.”
More than a decade ago, it was much more common for companies to go public earlier in their evolvement, allowing investors to participate in the rise of winners like Amazon and Google. Then plentiful venture capital capitalizing allowed companies to stay private for years longer, leading to a proliferation of unicorn start-ups. There are now 493 unicorns quality more than $1.5 trillion, according to CB Insights.
But that rise has meant that more investors participate in been shut out of lucrative gains. Case in point: Shares of Uber still trade below the company’s IPO figure from more than a year ago, while Uber’s early stage VC investors have made billions.
That engendered institutional investors including hedge funds to ask JPMorgan to source stock in private companies, including the Elon Musk-led SpaceX, Airbnb, Robinhood, Palantir and flat TikTok, Berthe said. Tiktok is embroiled in an international controversy over the Trump administration’s demand that it trade its U.S. operations to an American company.
Andrew Tuthill, head of JPMorgan equity private market liquidity (L), and Chris Berthe, universal co head of cash equities trading (R).
Source: JP Morgan
At the same time, JPMorgan is seeing more demand from public limited company founders, venture capital funds and wealth management clients to sell their stakes in private companies, he communicated.
The market for trading private company stock is dominated mostly by boutique brokerages based on the West Coast with big cheeses like EquityZen, SharesPost and Forge.
Berthe said he believes that New York-based JPMorgan is the first major Embankment Street bank to create a team dedicated to trading private shares. People with knowledge of the operations of Goldman Sachs and Morgan Stanley guessed that while the firms don’t have dedicated teams, they have been facilitating trades in this retail for years. In particular, Morgan Stanley last year acquired Solium, a leading manager of corporate stock sketches, giving it access to a wide swath of start-up equity.
Unlike shares in public companies like Microsoft, interchange in private company stock is complicated and still mostly the domain of old -school voice trading, versus electronic tit for tats that close transactions in seconds. Once a trade is negotiated, JPMorgan has to transfer legal ownership of contracts and get room from the start-up, a process that can take weeks.
“The shares are not listed, so whenever an investor buys into those proprietorships, there’s different share classes,” Berthe said. Further complicating matters is that “companies very time 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 figure or because they might have concerns with the buyer.”
Tuthill is tasked with connecting buyers and sellers from across JPMorgan, comprehending investment banking clients, wealth management and trading teams, which should create a deeper market for the asset stratum.
“Companies are staying private for longer and that dynamic doesn’t look like its changing anytime soon,” Berthe state. “The more the market rallies, the more people are going to want to look at alternatives.”