October 2020

Last month JP Morgan announced the creation of a new private trading team based in their New York office. The team is dedicated to facilitating and sourcing Pre-IPO trades for their clients, with tech start-ups such as Robinhood, SpaceX and airbnb named as targets for the team.

Pre-IPO trading is not necessarily a new area, but it is increasingly catching the eye of investors who would previously have been shut out of the option. Once available only to private equity investors, seed funding initiatives and hedge funds, JP Morgan are hoping to open up the opportunity to capitalise on early growth to more traditional investors.

The process is more involved than trading a publicly listed stock, harking back to old school trading processes. The team must buy a portion of the company to then pass on to their client, facilitating contact with the target company, exchanging contracts and negotiating prices.

The rapid growth and huge profit opportunities of start-ups has been making news for years. Where companies decades ago had to go public fairly early in their growth to source large amounts of funding, many are choosing to stay private longer to avoid the bureaucracy that comes with listing. As these firms gain more attention, traditional wealth management clients are seeking to capitalise on the opportunity.

While the team will likely focus on US companies in its early days, Australia no doubt offers a potential market for similar teams. Unicorns like Canva, recently valued at $8.7 billion, has seen record growth, which has largely been restricted to founders, early employees and angel investors. Allowing larger funds, particularly super funds in Australia, to access these profits could have lasting effects on the sector.