As reported in the Wall Street Journal yesterday, the number of publicly held companies in the U.S. is lower than is was in 1976. GDP is much higher. So more money is concentrated in fewer companies, which we would argue poses greater volatility and investor risk. Why is this? Reasons include – as we discussed yesterday – fewer new business startups is one example. Huge costs associated with reporting requirements for IPO’s, low interest rates which fuel private equity investment and increased borrowing, increased pressure on employee benefit costs, higher sales tax – which impacts retailers all contribute.
Getting back to the public companies… With more underfunded public pensions concentrated in fewer public held company investments, what will that mean for volality risk? It means greatly underfunded public pension obligations which need higher returns are being forced to take on more risk. This will not end well. Over-regulated markets depress investment options on which public defined benefit pensions rely. In other words – regulators are basically shooting themselves in the foot. Not only are defined benefit schemes un-sustainable and outdated, high insurance costs squeeze startup innovation.
With Elon Musk of Tesla talking about taking his company private, that could be one less public investment option in the future.
Torrey & Gray recruits accounting and finance professionals that help your organization navigate these issues. Contact us if you need permanent employees or temporary staff. We place CFO’s, Controllers, Treasury Professionals, Accounting Managers, Finance Leaders, etc.
For the WSJ Journal article, click here.