Abstract

The U.S. IPO market is in the midst of an unusually long cold spell. Investors are concerned about how the IPO market, and more broadly the market for private equity exits, has affected distributions to their portfolios. For example, one source recently shared with us that distributions as a percent of prior year-end valuations are only about 6% (annualized) through 2023:Q2, versus about 10% for 2022, and 20-25% annually over the past decade. This has led us to wonder how the current episode compares to historical IPO activity and if recent signs (e.g., the recent filing by Shein) suggest the market is thawing. To examine this question, we take a high-level look at long-term trends in buyout fund exit activity, and how this compares to overall IPO activity. We briefly review previous research on IPOs and provide some historical context for current conditions. Finally, we provide estimates from a simple model of IPO activity and use it to understand what economic and market factors could lead to a re-opening of the IPO market in early 2024. The news isn’t especially promising. Our analysis suggests that even with strong recent market returns (which are a statistically strong predictor of IPO activity), there is roughly a 2-in-3 chance that the “cold” IPO market will persist through the first half of 2024.