Private Market Update - May 2023

Private market still finding its footing as rate hikes slow and new index analytics emerge

Key Takeaways
  • Forge Private Market Index provides new lens into private market performance
  • Select companies trade at a premium for the first time in 2023 while bid/ask spread widens slightly
  • Buy/sell ratios remain roughly consistent thus far in 2023

Private market participants continue to navigate one of the most challenging macroeconomic environments of the past decade, with investors in nearly all asset classes adjusting to interest rates that have risen 500 basis points since March 2022.1 While recent economic indicators continue to present mixed signals, they point to a slight softening of the economy, meaning the Fed may finally be seeing its efforts pay off as it seeks to tamp down inflation without causing a recession.

This month brought positive news, as inflation reports recorded a 4.9% annual increase in May 2023, down considerably from the 9.1% high in June 2022.2 But as is typical in today’s climate, there’s a counterweight: U.S. GDP grew 1.1% in Q1 2023, a steep slip from the 2.6% witnessed in the previous quarter.3

On the whole, turbulence in the public equity markets has quieted down, with the CBOE Volatility Index (VIX) dropping, in early May, to its lowest level since November 2021 despite the ongoing regional banking crisis and concerns around commercial real estate. The IPO market is showing its first signs of life, as Internet of Things (“IoT”) integration specialist ARB IOT Group, electric vehicle battery-swapping technology company U Power, and fitness technology company Interactive Strength all made their public debuts in April.

Similarly, private markets continue to find their footing. Certain April signals are flashing positive, like companies in the 90th percentile and above of price premiums trading at a premium instead of a discount for the first time all year. Others indicate more work to be done, such as a slight widening of the bid/ask spread on Forge Markets in April 2023. 4

Prominent investors continue to express their long-term growth plans for the private market. A recent BlackRock survey found that 39% of institutional investors see private secondaries as the biggest opportunity in the private market.5 A separate study from Goldman Sachs found that 41% of ultra-high-net-worth family offices surveyed plan to increase private equity exposure, and that those “family offices are especially drawn to the private equity secondary market, where institutional investors can buy existing stakes in funds or companies.”6

In other words, some of the largest private market participants are forecasting greater involvement in the sector despite The Economist noting that “private markets are notorious for their opacity.

Forge aims to change that, and bring transparency to the private markets. 

The Forge Private Market Index, launched earlier this month, aims to give investors tools and analytics similar to those available for other, more established asset classes. As the benchmark for actively traded private companies, the Forge Private Market Index reflects the up-to-date performance and pricing activity of venture-backed, late-stage companies that are actively traded in the private market and can be used by investors to measure this asset class and research new investment ideas.

This month’s Private Market Update marks the first time that the index is available for analysis, and Forge looks forward to sharing more data from this new product over time.

The Details

Forge Private Market Index shows market down -2% QTD 7

Since initiating the Private Market Update in February 2022, Forge has largely represented performance by comparing closed trade prices on Forge Markets to a company’s last primary fundraising round. Primary fundraising valuations are important measurements among the VC-backed tech companies that tend to make up the private market and provide critical insight into private company performance. However, they may bring added latency given their infrequent updates, and Forge sought to provide investors with a way to understand private company performance with more frequent and recent pricing inputs.

The result is the Forge Private Market Index, which aggregates and structures private market trading and pricing data from Forge and other private market platforms and applies a pricing methodology that contextualizes private market transactions into an index model that is recognizable to public market investors who are familiar with indices like the S&P 500. This index aims to standardize the performance reporting of private companies while ensuring that valuations are fresh.

The index consists of four years of index history through different market cycles, with up-to-date performance information on 75 U.S. domiciled, late-stage, venture-backed companies. As noted below, the index shows hypothetical returns exceeding those of several broad public market ETFs, though performance has waned since rates began rising in 2022.

Public market investors know the 11 GICS sectors by heart. But, while the public market has well-established sectors like energy, utilities, and consumer discretionary, the private market is unique and warrants its own sector classification. The Forge Private Market Index is currently comprised of nine distinct sectors and multiple sub-sectors like animal-free protein, payments, and cybersecurity. The Forge Private Market Index goes through a quarterly reconstitution which may shift the number of sectors and subsectors over time – below is the current composition.

Top companies trade at a Premium for first time in 2023

In April, companies in the 90th percentile and above of price premiums versus last funding rounds saw their stock trade at an 11% premium – the first such example in 2023 of a segment of companies trading above their primary fundraising valuation. 8 These outperformers, however, couldn’t raise the median company performance, which fell for a fourth consecutive month.

The median bid-ask spread on new indications of interest (“IOIs”) is at 27% for companies with both buy-side and sell-side interest on Forge Markets, a slight increase from last month. 9

64% of the IOIs on Forge Markets came from sellers in March 2023, compared to 36% from buyers – almost exactly in line with last month’s reading.10 Any future shift to the buy-side may reflect greater investor participation going forward, while a future shift toward sell-side could signal the opposite.

Finally, Forge Markets saw 203 unique issuers with sell-side IOIs in April 2023, up slightly from March.11 This reflects continued supply from sellers looking to liquidate their shares and a potential opportunity for buyers to secure new positions at potentially attractive prices.

1 Bloomberg News, 05/03/2023

2 CNBC, 05/10/2023

3 Bloomberg News, 04/27/2023

4 Forge Data as of 4/30/2023

5 Blackrock

6 Economist, 04/27/2023

7 Forge Data as of 5/10/2023

8 Forge Data as of 4/30/2023

9 Forge Data as of 4/30/2023

10 Forge Data as of 4/30/2023

11 Forge Data as of 4/30/2023

About the Author

Dan Chaparian is VP of Product Marketing at Forge Global. Prior to joining Forge, Dan was VP, Global Product Marketing for BlackRock's iShares ETF business. He previously held positions at Apple and Uber and is a former startup founder. Read more from Dan.

All rights reserved. The Forge Private Market Index is calculated and disseminated by Forge Data LLC (“Forge Data”) and is a mark of Forge Data. The Forge Private Market Index is solely for informational purposes and is based upon information from sources believed to be reliable. It is not possible to invest in the Forge Private Market Index, and Forge Data makes no assurance that any investment products based on or underlying the Forge Private Market Index will accurately track index performance or provide positive investment returns. Forge Data is not an investment adviser and makes no representation regarding the advisability of investing in any asset classes or investment vehicles. Private company securities are highly illiquid, and the Forge Private Market Index may rely on a very limited number of trade and/or IOI inputs in its calculation. Brokerage products and services are offered by Forge Securities LLC, a registered broker-dealer and member FINRA/SIPC. Please see Forge Private Market Index Disclaimers & Acknowledgments for other important disclaimers, disclosures and restrictions related to the Forge Private Market Index that you acknowledge by using this website and to which you are subject.

About Forge

Forge Global Holdings, Inc. (together with its subsidiaries, “Forge”) is a leading provider of marketplace infrastructure, data services and technology solutions for private market participants. Forge Securities LLC (“Forge Securities”) is a registered broker dealer and a Member of FINRA that operates an alternative trading system. 

Legal Notices and Disclosures

Past performance is not indicative of future results.

The information and material presented in this article is provided for your informational purposes only and does not constitute an offer by Forge to sell, or a solicitation of an offer to buy any securities and may not be used or relied upon in connection with any offer or sale of securities. An offer or solicitation can be made only through the delivery of final offering document(s), purchase agreement(s), and other applicable documentation, and will be subject to the terms and conditions and risks delivered in such documents.

This article does not constitute an offer to provide investment advice or service. Registered representatives of Forge Securities do not (1) advise any member on the merits or prudence of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services. Securities referenced in this article may be offered by Forge Securities, and certain Forge affiliates may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involves a high degree of risk, and you should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice. Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.