Morgan Stanley’s (NYSE:MS) wealth management arm is opening up a new avenue for its clients to engage in trading shares of private companies, allowing them access to sought-after stocks before they hit the broader market. The move, as reported by Bloomberg, comes in response to the trend of startups prolonging their stay in the private realm before considering initial public offerings.
Assisted by Morgan Stanley’s private markets transaction desk, wealth management clients will now have the opportunity to invest in the often opaque and fragmented market of private shares. This initiative enables employees and select institutional investors to sell their stakes to accredited investors.
Although trading in private shares inherently carries more risk due to their lack of liquidity, an increasing number of investors are drawn to them, seeking to capture the growth potential of companies transitioning from private to public status.
Kevin Swan, head of private markets solutions at Morgan Stanley Wealth Management, emphasized the growing demand for early-stage investment opportunities, stating, “There’s been increasing pressure over the past number of years to get into these companies while the value creation is occurring rather than having to wait until the IPO. When investors require liquidity, we want to be there to have a solution for them.”
Morgan Stanley aims not to directly compete with existing platforms facilitating pre-IPO share trading but to adopt an inclusive approach, collaborating with both external platforms and internal resources to facilitate trades according to individual circumstances.
Michael Gaviser, head of private markets at Morgan Stanley Wealth Management, highlighted a narrowing bid-ask spread in the startup market following movements by the Federal Reserve. He anticipates a surge in market activity as investor confidence grows alongside this trend, stating, “What drives the market going forward? That narrowing of the bid-ask spread and people getting more comfortable with the state of the marketplace.”
Morgan Stanley’s wealth management segment, which accounted for 48.5% of total net revenues in 2023, offers a range of services including brokerage, investment advisory, financial planning, and trust and fiduciary services. Over recent years, the company has strategically expanded its focus on wealth and investment management, evident in acquisitions such as Eaton Vance, E*Trade Financial, and Shareworks.
This strategic shift has proven fruitful, with the combined contribution of the wealth and investment management segments to net revenues increasing from 26% in 2010 to over 57% in 2023. Notably, the wealth management segment has seen a five-year compound annual growth rate (CAGR) of 17.4% in total client assets, while the investment management segment’s assets under management recorded a CAGR of 21.5% over the same period.
In line with its emphasis on wealth management, Morgan Stanley is exploring the addition of spot bitcoin exchange-traded fund (ETF) products to its brokerage platform. This move follows the approval of spot bitcoin ETFs by the Securities and Exchange Commission in January, with ten such ETFs currently trading in the United States.
Despite a 7% increase in Morgan Stanley’s shares over the past six months, it lags behind the industry’s 13.8% rally, signaling the potential for further growth and adaptation in the evolving financial landscape.
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