Private companies to offer volatility buffer

Private companies, which are often-overlooked aspect of investing, may provide the volatility buffer within a portfolio during economic turbulence and uncertainty, according to trading platform for unlisted companies PrimaryMarkets.

The private companies, unlike the valuations of listed equities which tend to overreact to market sentiment both positively and negatively, can be less vulnerable and, longer term, can offer opportunity to be “on the ground floor of an initial public offering (IPO)”.

Marcus Ritchie, chief executive at PrimaryMarkets, noted that the recent takeover of Credit Suisse by UBS following on from the Silicon Valley Bank collapse raised the spectre of another Global Financial Crisis (GFC)  whilst ongoing uncertainty about China’s economic growth was impacting on traditional haven sectors of the Australian Securities exchange (ASX) such as banks and resources.

“The performance of the property based equities markets in 2022 is a good example of the potential bifurcation of volatility and valuation between listed and unlisted securities. According to Property Council of Australia data there was a significant discrepancy in the performance between listed funds (~minus 20%) and unlisted funds (~positive 19%),” he added.

“This investment scenario is prompting wholesale investors to look at alternatives, including significant unlisted companies valued at more than $20 million with proven earnings track records and strong growth prospects, particularly in technology, heath care and renewables.”

According to PrimaryMarkets, Virtual Gaming World (VGW) was an example of such private company, which saw substantial growth in revenue to over $3 billion, supported with sound profit margins while paying shareholder dividends