(Yahoo! Finance) - Charles Schwab (SCHW) said Thursday that it's buying publicly traded investing platform Forge Global Holdings (FRGE), which acts as a marketplace for pre-IPO companies, for $660 million.
The all-cash deal gives one of the country’s largest wealth management platforms more scale to offer customers access to shares of privately held companies, and it's just the latest move in the building finance wave of getting private assets into everyday investor accounts.
During Thursday morning trading, Schwab’s stock fell slightly while Forge’s stock rose 67%. Since the beginning of the year through Tuesday’s close, the stocks for both companies have rallied. Schwab’s stock was up 26% and Forge’s stock was up 87%.
“Through Forge’s leading marketplace, we’re uniquely positioned to deepen liquidity, improve transparency, and further democratize access to this increasingly important source of wealth creation for investors,” Charles Schwab CEO Rick Wurster said in a statement.
Forge sources shares of private companies from founders, employees, and venture capital backers seeking to sell their stakes.
“This combination will transform how the private market works,” said Kelly Rodriques, CEO of Forge. “With Schwab’s reach and Forge’s solutions, private companies will gain access to liquidity and new growth options from an expanded market of qualified retail investors, while investors will gain new ways to invest in the innovation economy.”
Yahoo Finance partnered with Forge in March to offer data on pre-IPO stocks like SpaceX (PAX.PVT) and Plaid (PLAI.PVT).
The deal builds on Schwab’s recently launched alternatives platform, which is only eligible to clients who hold $5 million or more with Schwab.
It also comes at a prescient time. Fewer companies are seeking to go public through traditional IPOs now compared to years past. Meanwhile, the stock market's value concentration into just a handful of major tech giants, along with its nearly three-year rise, has fueled no small amount of worry over investor exposure during a significant downturn.
"The S&P 500 is at an all-time high in terms of the concentration of the index; we see a record number of clients that have concentrated positions," Wurster told Yahoo Finance's Brian Sozzi in a Thursday interview.
The Trump administration is trying to change that.
US Securities and Exchange Commission chairman Paul Atkins, who is a Trump appointee, has championed the effort for his agency to “Make IPOs Great Again” by finding ways to make it easier for private companies to go through the initial public offering process.
The administration is also paving the way for millions of Americans, including 401(k) and other retirement savers, to get shares of private companies and other alternative assets like real estate and private credit into their accounts. He signed an executive order back in August calling for the SEC to facilitate the move.
Wall Street’s biggest asset managers, including BlackRock (BLK), KKR (KKR), and Apollo Global Management (APO), the owner of Yahoo, are keen on the move, which opens up the multitrillion-dollar retirement account industry to a broader mix of funds managed by these firms.
Getting access to these two investor groups — retirement savers and retail investors — is far and away the biggest future funding opportunity for the private fund manager industry.
Whether private market assets are the right fit for everyday investors is still an open debate in the world of financial services, even if it's all but certain to happen.
The argument against the move is that the assets come with less disclosure, more management costs, can be riskier than plain-vanilla index funds, and are less liquid, making it difficult to get money out if things go sideways.
The argument for allowing everyday investors to access shares of private companies and other illiquid assets is that it gives them more diversification away from public markets and a shot at bigger returns — in exchange for some illiquidity.
"I'm confident that over the long run, investing in private companies will be an attractive way and a diversified way to generate wealth for our clients," Wurster added.
It would also be "an attractive source of revenue diversification for Schwab," he told analysts earlier Thursday.
By David Hollerith - Senior Reporter
