July public and private markets update

July showed mixed dynamics for both the macroeconomy and financial markets. Most investors were discussing the potential US Fed rate cut and whether the US economy would enter a recession. Published indicators could not fully answer this question: while unemployment in the US rose to 4.3%, labor participation also increased, and preliminary data shows the US GDP growth rate to stand at 2.9%. The macro data may indicate a slowdown but not an impending recession. The sharp movements that happened on the markets in August, in all likelihood, do not represent a systemic failure but rather an investor reaction to some unexpected triggers.

Capital markets' July performance was also mixed. S&P500 gained 0.8%, but the FAANG companies all declined somewhat. The MSCI EMU (Euro) index rose slightly by 0.44%. MSCI China went down by 1.23%. Most bond indices from developed and developing markets also rose.

What does this data mean for private markets?

Investors are receiving a strong signal of ongoing uncertainty, which will encourage them to look closely at a potential target's financial metrics rather than ride hype waves like the AI industry. Profitability and operational efficiency have become key metrics. In the late-stage venture / pre-IPO industry where we operate, access to internal information is crucial to ensure the above metrics are reachable.

Talking about the highlights in July, it appears that the private markets indices we are following are still lagging behind the public ones: Forge Private Market Index declined by 1.3% in July and rose by 4.0% YTD, whereas the Hiive50 index rose by 1.4% and 10.5%, respectively (S&P500 rose by 16.6% YTD). However, a part of this underperformance should come from the summer lull. 

Unicorns continue to be minted (5 new ones in Q2). The IPO pipeline is also growing firm, with tech giants such as Chime, CoreWeave, Klarna, Cohesity, and Cerebras preparing for a public debut ($102 billion overall).

Investor interest is strong but much more company-specific than before. Premiums for top-performing private companies are growing (64% premium vs. last primary round on average) while outsiders continue to drown without funding. 

Sources: Fed data, Forge Global, Hiive