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How to stay ahead of the ESG curve in 2021



If you are feeling like us, you will be heartily glad to see the end of 2020. But what will 2021 bring? We are not going to place bets on when the pandemic might end or economic recovery start. But here, in the last edition of Moral Money for 2020, are our thoughts and forecasts for what the new year is likely to deliver for environmental, social and governance issues in these peculiar times. Please tell us if you agree — or not.

The ESG boom lives on

There are not many silver linings to the dark cloud of Covid-19. However, here is one: to the surprise of many (including us), the pandemic accelerated interest in environment, social and governance issues in 2020, and Moral Money predicts this will intensify in 2021. There are at least five reasons:

  1. The ESG boom is now being driven as much by risk management as activism: Covid-19 has shown company executives and financiers around the world the perils of ignoring so-called “externalities”.

  2. The “externalities” around climate change will be increasingly on the agenda in 2021 due to the COP26 meeting, more instances of extreme weather and polls that show society broadly cares about global warming. Covid-19 proved the perils of ignoring science; it also showed that behaviour can change in surprising ways when the public understands the nature of the emergency.

  3. Big money increasingly has a stake in promoting the ESG agenda, for its own benefit, and will lobby for this in 2021. Larry Fink, chief executive of BlackRock, recently told Moral Money that he viewed climate finance as the second big structural shift of his investing career (the first was the rise of securitisation — which he spotted early on, and used to launched his career). And while longtime ESG enthusiasts scoff that Mr Fink is late to the game compared with earlier activists, the key point is this: since Mr Fink (and others) have spotted a momentum trade in ESG, they are determined to maintain this momentum.

  4. Transparency is rising in a manner that will make company boards and investment committees nervous about falling foul of ESG norms in 2021, particularly in the face of millennials who have used transparency to demand change (be that employees, customers or anyone else). The shock of the #MeToo movement in 2019 and Black Lives Matter in 2020 has shaken executive attitudes. Even if you hate the idea of “stakeholderism”, ignoring ESG can be bad for shareholders.

  5. Politics will back ESG momentum in 2021 too. In the UK, Prime Minister Boris Johnson has thrown his weight behind green reforms. The European Commission is pressing ahead with its green taxonomy and green stimulus plans. The incoming administration of Joe Biden has put climate policy at the centre of its staffing decisions, and is likely to push for rapid ESG investing reforms. China pledged to go carbon neutral and Japan has followed with its own promises. Indeed, these days it is tough to find any government — except Brazil — that is not trying to get a green halo in some form.

Chart of ESG ETF assets under management by region ($bn)

To be clear: we are not predicting that the growth of ESG will have a smooth trajectory in 2021. There are big problems dogging the sector such as a lack of accounting consistency, different transatlantic policy approaches, too much money chasing too few viable investment products and the difficulty of deciding how the “E” of ESG should be balanced against the “S”. This will probably produce some scandals and greenwashing complaints in 2021. But the direction of travel is clear: ESG is moving from the margins to the main stage.

So what should investors watch for in particular? Here are a few thoughts . . . 

Will COP26 succeed?

© Getty Images

COP26, the UN summit in Glasgow, is seen as a make-or-break moment for the fight against climate change. The meeting, which was postponed from last month until November 2021, will bring world leaders together to discuss how they plan to achieve the goals of the 2015 Paris climate accord. Key issues on the table are set to include global carbon pricing and a chance to make up for the failure of 2019’s COP25 in Madrid.

The meeting is likely to demonstrate a rising chorus of support for green policies. At the beginning of 2020, “nobody thought there will be any chance of delivering at COP26”, said Daniel Klier, global head of sustainable finance at HSBC. “Now, we have almost entered an arms race of who can be better.”

What will be really interesting to watch, though, is not just what the public sector does, but how companies and businesses respond. Mr Klier, for example, forecasts that private sector action during the COP26 meetings may have a much more lasting impact than some of the things governments agree to in conference rooms. This private sector emphasis represents a shift toward a bottom-up, business-first approach that the UK prefers rather than a continental European top-down government approach.

What will Biden do next on climate?

Joe Biden was elected US president on a green(ish) platform — at least when compared with Donald Trump. But what shade of green will his administration actually embrace? The appointments made thus far suggest that his team is aiming to put “green” at the centre of economic policymaking — but rolled out in a pragmatic manner that tries to win broad-based establishment support.


His Treasury secretary nominee, Janet Yellen, just co-authored a vast G30 paper calling for practical climate change policies (such as carbon taxes). Brian Deese the man who has been running ESG policy for BlackRock, is now the chief economic adviser to the White House. John Kerry, the seasoned wily diplomat, was named special global envoy on climate change. Mr Biden has selected environmentalists to helm the Environmental Protection Agency and other key agencies.

This means that in 2021 we will not just see the US rejoin the Paris climate accord, but also move ahead with substantial policy discussions. Expect some form of a carbon tax, a clamp down on carbon emissions and noise about shale gas. And watch for changes to the Department of Labor and to Securities and Exchange Commission rules that would make it easier for asset managers to invest in ESG products. If these transpire, the impact will be significant.

The battle around supply chains

Three or four years ago, when companies said that they wanted to “be sustainable” they usually had their own operations in mind. No longer.

Companies today are facing growing demands from investors, employees and clients to not just raise standards in their own businesses, but those of their supply chains too. Walmart is one American pioneer in this respect: it is urging its suppliers to cut carbon emissions, improve their biodiversity footprint and will soon move to social issues too.

Others will undoubtedly join the conversation in 2021, not least because it seems that investors seem minded to reward companies that are raising ESG supply chain standards. This is partly because investors have realised that if a company is able to monitor ESG standards among suppliers, it is probably fairly well run in general.

The accounting alphabet soup will keep swirling

2020 was the year that Moral Money got utterly fed up with the confusing mess of acronyms linked to ESG accounting standards (TCFD, SASB, GRI, to name but a few). So did many investors.

Happily, 2021 is likely to deliver (slow) movement towards creating a more rational world. Moral Money expects that eventually some form of a system based around TCFD and SASB will shape how most companies report on ESG issues, possibly within the frame being championed by the World Economic Forum (even thought many continental Europeans still love GRI).

© Getty Images

We rather hope that the easy-to-understand label “impact accounting” that has been launched by Harvard Business School professors and Ronald Cohen becomes the more popular tag since it is so much easier to pronounce and explain.

The olive yield curve

The European Commission will press ahead with efforts to introduce its green taxonomy in 2021. It deserves kudos in this respect for being a pioneer (and, by default, the global standard setter since the Trump administration withdrew from Paris).

But 2021 will also be a year when investment bankers and companies push for a more nuanced definition of “green” to ensure that brown companies, such as fossil fuel giants, are rewarded in the markets and court of public opinion as they travel in the general direction of green.

Call this, if you like, the rise of olive finance. Some activists deride this as greenwashing; others argue that it is the only way to encourage (or force) more companies to transition to a cleaner world. Either way, expect to see more “transition” or “sustainability linked” bonds that offer cheaper finance if green(er) goals are met. That, in turn, will encourage the creation of more platforms to monitor how companies and their projects are moving along this “olive” scale.

The 2020 Tokyo Olympics in 2021

© AFP via Getty Images

The Olympic Games in Tokyo were a hard sell to begin with. Tokyo is not a desirable place for the summer games due to the extreme summer heat in recent years. The International Olympic Committee even decided to move the marathon to the cooler northern city of Sapporo. Not all Japanese were convinced by the “hosting the Olympics will kickstart the economy” logic.

Then came the Covid-19 pandemic. The games are delayed about a year, causing an extra cost of ¥294bn ($2.8bn) on top of the existing ¥1.35tn budget. Shinzo Abe, a proponent of the Tokyo games, is no longer the country’s prime minister. A recent poll showed that a majority of the public opposes holding the games next year, favouring a further delay or outright cancellation.

Japan needs to establish a new model of success for the Olympic Games. Pre-pandemic-style success, a packed stadium full of local people and overseas tourists, is unlikely to happen and may not even be desirable — inside or outside of Japan. But a clear blueprint of the post-pandemic games has not yet been provided by the new administration of Yoshihide Suga — or the IOC.

The local mood is sour, but Kenji Fuma, chief executive of Tokyo-based ESG advisory company Neural, sees a bright spot: global co-operation. As multilateral meetings are on the decline under the pandemic — even virtually — Mr Fuma thinks that the games can act as a reminder of global collaboration. “I hope that [the] Tokyo Olympics in 2021 will be remembered as a turning point that fortifies bonds among countries and creates a mood to fight for the sustainable society together”, said Mr Fuma.

Investors raise the stakes in proxy season 2021

Companies’ annual general meetings used to be torpid affairs, brightened only by the free snacks. But, now, the gatherings have become battlegrounds for ESG activists — punctuated in 2020 by a record year of support for environmental and social shareholder proposals.

Climate change will remain a top concern for shareholders in proxy voting season 2021. UK hedge fund billionaire Chris Hohn’s “Say on Climate” initiative will be coming before US shareholders. Investors will continue to fight coal. Amundi plans to broaden its coal engagement beyond European banks to insurance companies and other financial services businesses on other continents.

And social issues focusing on paid leave and diversity disclosures will gather steam. First up: BlackRock. Mr Fink’s all-important letter to companies in the weeks ahead could be a bellwether for social concerns just as his 2020 letter was for climate change causes.

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Hedge fund manager Hohn pays himself $479m




Billionaire hedge fund manager Sir Christopher Hohn has paid himself a dividend of $479m, one of the largest-ever annual personal payouts in the UK, after profits at his firm more than doubled last year.

Hohn, who is founder of Mayfair-based TCI Fund Management and one of the UK’s biggest philanthropists, made the payment to a company he controls during the year to February 2020, according to regulatory filings.

TCI, which manages more than $45bn in assets and tends to bet on rising rather than falling prices, has been a big winner from the bull market of recent years. During 2019 it made $8.4bn worth of profits for investors, according to LCH Investments, profiting from gains in stocks including Alphabet, Charter Communications and Canadian Pacific Railway.

TCI Fund Management’s profits for the year to February 2020 jumped 108 per cent to $670.9m. The $479m dividend was then paid to a separate firm TCI Fund Management (UK). Both companies are controlled by Hohn.

TCI declined to comment. The payment was first reported by The Guardian.

While the payout beats the £323m paid to Bet365 boss Denise Coates in 2018, much of it has been reinvested in TCI funds, filings show. It is also far from the biggest-ever hedge fund payday, being dwarfed by sums such as the $3.7bn earned by US manager John Paulson in 2007 thanks to bets on the subprime crisis.

In 2014, during testimony in his divorce battle with estranged wife Jamie Cooper-Hohn, Hohn described himself as “an unbelievable moneymaker”. A High Court judge later awarded Cooper-Hohn a $530m divorce payout.

Hohn, who grew up in Surrey and is the son of a Jamaican car mechanic, is known as one of Europe’s most aggressive activist investors. A backer of climate group Extinction Rebellion, he has been vocal in recent years in pushing companies to improve their climate policy, for instance threatening to sue coal-financing banks and warning his fund will vote against directors whose companies do not improve pollution disclosure.

In October Spanish airports operator Aena bowed to pressure from Hohn’s fund, becoming the first company in the world to give shareholders an annual vote on its climate policy.

Through his charity The Children’s Investment Fund Foundation, which in 2019 approved $386m of charitable payouts, he wrote to seven of the world’s biggest asset managers, urging them to put pressure on companies over climate policy.

Last year TCI was one of a number of funds looking to raise fresh assets from investors after suffering losses during the pandemic. It was also one of the big winners from betting against collapsed German payments group Wirecard, making as much as €193m in a week, according to data group Breakout Point.

Hohn’s fortune was estimated last year at £1.3bn by the Sunday Times Rich List.

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FCA first alerted to concerns over Neil Woodford’s business in 2015




The Financial Conduct Authority was warned about problems within Neil Woodford’s investment business less than a year after it opened in 2014 but did not intervene for almost another two years, according to several people briefed on the process.

Woodford recently announced plans to relaunch his career at a time when the regulator faces pressure from politicians and campaigners critical of its oversight of the stockpicker’s failed business — and over how long it is taking to investigate his downfall.

The onetime star fund manager was forced to suspend his flagship £3.7bn investment fund in June 2019, trapping the savings of hundreds of thousands of investors in the biggest British investment scandal for a decade.

But concerns over its investment strategy were raised within the first year of its operation, when two of the company’s founding partners — chief operating officer Nick Hamilton and chief legal and compliance officer Gray Smith — resigned after falling out with Woodford and chief executive Craig Newman.

Given their senior roles in such a high-profile business, Smith and Gray were asked to discuss the reasons for their departures in exit interviews with the FCA in January 2015. The FCA did not act on the information they presented, according to those familiar with the regulator’s dealings with the company.

The four founders had clashed openly over the company’s compliance culture and the level of due diligence carried out on Woodford’s investments in private companies, according to former WIM staff members.

Hamilton and Smith were especially concerned with the amounts being committed to unlisted companies.

In response to FT questions over the exit interviews, the FCA said: “Where we receive information relating to concerns about firms or individuals we follow up and take action where appropriate. But we do not conduct our supervision of firms or individuals in public.”

Smith and Hamilton declined to comment. Several former staff at WIM said they were unable to talk publicly about their departure from the company.

A spokesman for Woodford said: “It is true that the FCA did not approach us after the interviews, and I am sure would have approached us had there been any concerns raised from the interviews.” 

The spotlight falls on the FCA at a tricky time for the regulator as it seeks to draw a line under a spate of industry controversies during the tenure of its previous chief executive Andrew Bailey, now governor of the Bank of England.

A recent review of its handling of the £236m collapse of mini-bond issuer London Capital & Finance found repeated failures by the watchdog to act on external warnings. “The FCA’s handling of information from third parties . . . was wholly deficient,” the review concluded. “This was an egregious example of the FCA’s failure to fulfil its statutory objectives”.

Bailey took over as head of the FCA in 2016, after the contract of his predecessor Martin Wheatley was not renewed, and led it during both the Woodford and LCF collapses.

In February he told MPs on the Treasury select committee that when he joined the FCA it had “no system for extracting information” from warnings or tip-offs. “I’m not hiding things that went wrong,” Bailey said. “There should have been a mechanism to alert supervision and enforcement.” 

Nikhil Rathi, the FCA’s current chief executive, and Charles Randell, its chairman, will be quizzed by the committee on Monday about its handling of LCF.

While giving evidence to parliament in June 2019, Bailey said the FCA’s first intervention with WIM was at the end of 2016 when the regulator spotted a conflict of interest in the business’s valuation process. By this point WIM managed almost £10bn and was the UK’s sixth best-selling fund manager.

The FCA has been dogged by questions over its oversight of WIM having approved the business to start trading just months after it found funds managed by Woodford at his former employer, Invesco Perpetual, exposed investors to higher levels of risk than they had been led to expect.

Invesco Perpetual was fined £18.6m for the breaches, which also involved several funds not managed by Woodford, in what was a record penalty imposed on a UK fund manager. 

Woodford is still approved by the FCA to act as an executive director of an investment company, having updated his status in December 2019.

Ten days ago Mel Stride, chair of the Treasury select committee, called on the FCA to conclude its investigation into WIM’s implosion, saying: “As the FCA’s investigation still continues over 18 months after the fund was suspended, the reports of the new fund may understandably be of concern to investors who previously lost out.”

Owen Walker’s ‘Built on a Lie: The Rise and Fall of Neil Woodford and the Fate of Middle England’s Money’ will be published by Penguin on Thursday

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Staying private: the booming market for shares in the hottest start-ups




In 2014, an Austrian entrepreneur offered investors a rare chance to purchase shares in Jumio, his fast-growing and profitable payments company. The deal was not a typical venture capital transaction. Instead of purchasing new shares, investors could buy out earlier shareholders, in what are known as private secondary transactions.

Daniel Mattes, who calls himself a “visionary” on his Instagram page and has been a judge on the Austrian version of Shark Tank, the American reality TV series for entrepreneurs, told at least one prospective buyer he had no plans to reduce his own stake in the business, according to a US Securities and Exchange Commission complaint filed in 2019. Mattes also signed off on documents that, according to the complaint, claimed Jumio made a small profit and revenues of more than $100m in 2013 — a significant sum for a three-year-old company.

Two years later, Jumio filed for bankruptcy, and the company’s shares became worthless. In reality, according to the SEC, Jumio had only made one-tenth of the revenues it claimed, and Mattes had bypassed his board of directors to sell about $14m of his own shares.

Jumio’s case highlighted the risks of an opaque but fast-growing corner of finance: the global market for shares in private start-ups such as TikTok owner ByteDance, Elon Musk’s SpaceX and payments company Stripe. In 2019, the market was estimated to host almost $40bn in lightly regulated trades, according to one participant, more than doubling its volume from 2014.

Attendees wear costumes at a TikTok Creator's Lab hosted by ByteDance in Tokyo. The global market for shares in such private start-ups is an opaque but fast-growing corner of finance
Attendees wear costumes at a TikTok Creator’s Lab hosted by ByteDance in Tokyo. The global market for shares in such private start-ups is an opaque but fast-growing corner of finance © Shiho Fukada/Bloomberg

Recently, the market has been hotter than ever. Though private companies have largely tried to restrict trading, brokers say hedge funds, mutual funds and other institutional investors have begun pouring in, buying large blocks of existing shares in start-ups that are nearing initial public offerings or big acquisitions. Often, the investors receive scant rights to information on financial performance.

Technology upstarts and financial institutions including big banks have rushed to capitalise on the interest by brokering deals and forming trading venues, setting up a battle that could fundamentally alter the market’s structure and potentially allow companies to stay private indefinitely.

The boom reflects how cash-flush investors are clamouring for stakes in fast-growing businesses, with low interest rates pushing non-traditional funds deeper into private markets. To meet the demand, brokers now face two key challenges: increasing the supply of shares in desirable companies while preventing fraud and manipulation in a competitive market.

Until recently, private secondary markets resembled “that guy with a trenchcoat that’s selling you watches in Times Square”, says Inderpal Singh, who leads a private secondary market project at the start-up marketplace AngelList. “In the last year, there’s been a big shift.”

chart showing the growing trading volume in private markets

In addition to AngelList, JPMorgan and the software start-up Carta have begun facilitating trades in private companies. They compete with established players like Nasdaq and Forge Global, which purchased the rival marketplace SharesPost in a $160m deal last year, as well as scores of smaller independent brokers.

Carta and some other intermediaries have advocated that the SEC relax restrictions on who can purchase shares in private companies, potentially opening up the market to a broader swath of investors.

But some observers remain sceptical that the growing market can protect investors against bad actors. Mattes, who paid $17m to settle the charges, did not admit or deny the SEC’s allegations, though he resigned from Jumio in 2015 following an internal investigation. The entrepreneur did not respond to questions sent to his personal website.

The rush to expand trading could lead to fraud and manipulation, says Stephen Diamond, a professor of law at Santa Clara University who has studied private secondary transactions.

“All too often in Silicon Valley, people want to basically ignore the consequences of unhealthy market structures,” Diamond says.

Facebook's initial public offer is displayed on a news ticker in New York in 2012. The IPO created a frenzied market where independent brokers facilitated thousands of trades with little oversight from the company
Facebook’s initial public offer is displayed on a news ticker in New York in 2012. The IPO created a frenzied market where independent brokers facilitated thousands of trades with little oversight from the company © Michael Nagle/Bloomberg

The Facebook episode

The debates reflect a decade-long shift in capital markets as companies grow larger than ever in private — securing billion-dollar valuations and “unicorn” status while pushing back their public debuts. As a consequence, start-ups, investors and employees have accumulated trillions of dollars’ worth of shares that cannot easily be bought and sold, barring a public listing or acquisition.

Private secondary markets grew in importance in the lead-up to Facebook’s initial public offering in 2012. Investors rushed to buy the social media company’s shares, creating a frenzied market where independent brokers facilitated thousands of trades with little oversight from the company.

The trades created headaches. One Facebook executive left the company after he reportedly purchased stock ahead of a big funding announcement. Facebook sometimes lost track of who owned its shares, complicating preparations for its IPO.

Facebook’s struggles caused many start-ups to adopt strict clauses in their legal documents that prevented employees from trading shares without company approval. Some companies have gone even further, requiring sellers to receive approval from boards of directors months in advance of any transaction.

Though the restrictions have made trading difficult, brokers say the market has been busier than ever in the past 12 months, with big investors such as Tiger Global Management hunting for shares in start-ups that look like sure bets for blockbuster public listings.

Tiger Global has used secondary sales to gain stakes in companies such as China’s ByteDance and the software group Snowflake, according to fund documents and people familiar with the trades. Other hedge funds and mutual funds routinely purchase new stakes in companies worth tens of millions of dollars, brokers say.

Conference-goers at a Stripe booth during a GeekWire summit in Washington. The boom in private secondary markets reflects how cash-flush investors are clamouring for stakes in fast-growing businesses
Conference-goers at a Stripe booth during a GeekWire summit in Washington. The boom in private secondary markets reflects how cash-flush investors are clamouring for stakes in fast-growing businesses © David Ryder/Bloomberg

On the other side of the trades, existing shareholders such as venture capitalists have sought to unload stakes in highly-valued companies as they delay public listings. The market can also be an important source of cash for start-up employees, who receive a large portion of their pay in stock options.

Several new entrants, such as Carta’s private stock exchange CartaX, now hope to formalise the market and capture trading fees that have been spread between dozens of independent brokers.

“There is now, in the past few years, not a push to go all the way back to the days of strict prohibitions on secondary trading, but a push to have more avenues for organised liquidity,” says Cameron Contizano, a partner at law firm Goodwin Procter who works on secondary transactions.

Meanwhile, investor demand has pushed up prices for companies such as ByteDance, SpaceX and Stripe. Barrett Cohn, chief executive of the private securities broker Scenic Advisement, says he advised companies on twice as many secondary transactions in 2020 compared with the previous year. Of the last dozen deals Scenic worked on in the past few quarters, only one resulted in shares being sold at a discount to a company’s most recent stock price, he says.

Competing for business

The rise in trading volumes and the rush to capture the market will shape the way private shares change hands. San Francisco-based Carta, a company best known for selling shareholder management software to start-ups, has become a lightning rod in debates about the market’s direction. Its 45-year-old chief executive, Henry Ward, has set out an ambitious goal to build the “private stock exchange” for tech start-ups.

Ward wants the CartaX marketplace to compete with the Nasdaq exchange, providing a listing venue where companies could potentially stay private indefinitely. The exchange uses an auction model that Ward says will result in superior prices for sellers.

But the project has already drawn strong responses from rivals and market participants. Some brokers and start-ups say CartaX amounted to an attempt to monopolise the market, and the company is naive to think it could unseat public exchanges. Scenic’s Cohn says Carta has made it increasingly difficult for its clients to export their shareholder data for use in other kinds of secondary transactions, such as tender offers.

Marc Andreessen, the Netscape co-founder and Carta board member. Platforms like CartaX may struggle to meet their targets if private companies remain selective about who owns their shares
Marc Andreessen, the Netscape co-founder and Carta board member. Platforms like CartaX may struggle to meet their targets if private companies remain selective about who owns their shares © David Paul Morris/Bloomberg

“We’re not trying to make the New York Stock Exchange go away,” says Kelly Rodrigues, chief executive of the brokerage Forge, which has begun offering software that companies can use to manage secondary transactions. Forge also bills itself as the “stock market for private companies”.

Others say the most desirable start-ups would not want to use CartaX because few private companies want to subject their shares to monthly or quarterly auctions marketed by the exchange.

Eric Folkemer, head of Nasdaq Private Markets, says it has already set up a similar marketplace with price discovery tools for companies such as the workplace collaboration company Asana that want to facilitate trading in their shares before going public.

“We have it,” says Folkemer. “The question is, does the market want it?”

JPMorgan has put its money behind Zanbato, a private share trading system that is taking a different approach from Carta, acting as a central matchmaker for more than 100 banks and brokers executing orders on behalf of clients.

Nico Sand, chief executive of Zanbato, says the exchange has made a conscious choice to focus on trades between large, qualified buyers with more than $100m in assets, who regulators assume have high amounts of financial expertise and require less oversight.

Zanbato has applied for a patent for a trading system with “firm orders”, a legal contract that forces buyers and sellers to transact shares in a private company after they have submitted orders with desired prices and quantities, says Sand.

He says the concept, which is standard in public markets, is necessary for creating efficient trading in private shares. “At the end of the day, it comes down to formalising the market structure in a way it’s not currently formalised.”

Chart showing trading activity on private stock trading platform Zanbato

‘The third configuration’

So far, Carta is the only company that is listed for trading on CartaX. This month, investors purchased almost $100m in shares following the company’s first auctions on the exchange, in trades that valued the company at $6.9bn — more than double the valuation it received from venture capitalists less than one year ago.

Marc Andreessen, the Netscape co-founder and Carta board member, said in a blog post that he would encourage start-ups backed by his venture capital firm Andreessen Horowitz to consider listing on the exchange. He also said the firm would buy shares in companies on the exchange.

“The third configuration — beyond the false binary of simply private or public — is here,” Andreessen wrote.

But Ward has set targets for the exchange that some people familiar with its workings described as overly ambitious.

A SpaceX rocket lifts off from Cape Canaveral, Florida. The company is one of the most active companies in secondary trading and hosts an internal marketplace where employees and venture capitalists can sell stock to invited investors
A SpaceX rocket lifts off from Cape Canaveral, Florida. The company is one of the most active companies in secondary trading and hosts an internal marketplace where employees and venture capitalists can sell stock to invited investors © Craig Bailey/USA TODAY NETWORK/Reuters

Ward told investors he expected CartaX to generate about $1.1bn in annual revenues by 2024, according to a presentation viewed by the Financial Times. Under the most optimistic scenario, the marketplace would bring in $3.9bn in revenues that year, the presentation said. Carta declined to comment for this article.

CartaX charges 1 per cent fees to both buyers and sellers, implying it would need to facilitate about $55bn in trades a year to reach Ward’s expectations.

Those volumes would require about 3 per cent of the shares in all billion-dollar start-ups to change hands every year, according to Financial Times analysis of data from CB Insights, which estimates that 546 “unicorns” hold a collective value of $1.8tn.

Platforms like CartaX may struggle to meet their targets if private companies remain selective about who owns their shares. SpaceX, one of the most active companies in secondary trading, already hosts an internal marketplace where employees and venture capitalists can sell stock to invited investors.

“They have a lot of demand from buyers,” says Hans Swildens, chief executive of Industry Ventures, which has invested in Carta. “The question, like all the other marketplaces, is supply.”

Venture capitalists say the new exchange could also face competition from an unlikely source — special purpose acquisition companies (Spacs), which have recently lured relatively young start-ups to public markets.

CartaX would force companies to share two years of financial statements prepared using generally accepted accounting principles, in order to comply with a securities exemption the exchange is using to allow participation from an unlimited number of accredited investors.

Lawyers and governance experts say the requirement could help solve inconsistencies in information disclosure in private markets. But others say it would be a burden for young companies, which often remain private to avoid sharing their financial information to a broad audience of investors, reflecting a central tension in the market as brokers and traders attempt to capitalise on the surge of interest in secondary transactions.

“The ‘move fast and break things’ culture of start-ups militates precisely against this,” says Diamond at Santa Clara University. “That, to me, is the fundamental paradox here.”

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