By Jared Tilley, NAOS Asset Management
“The first rule in fishing has always been fish where the fish are. And the second rule of fishing has always been ‘Don’t forget rule number one’”. Charlie Munger, March 2019
During the 2019 Annual General Meeting of Daily Journal Corporation, Charlie Munger stated the above and while he was talking about another investor (Li Lu from Himalaya Capital) and how he had been so successful by “fishing in China”, the quote can be applied universally to all investors and the ponds in which they fish. However, it does raise some interesting questions, mainly, what happens if the pond is shrinking?
Now, Australian investors have always displayed a home bias, favouring local companies versus international due to several factors, including:
- familiarity,
- concerns around currency or political risk,
- access and transaction costs; and
- franking credits.
However, as shown in the chart below, the number of listed companies on the Australian Securities Exchange has steadily declined since its peak in 2022. Hence, our pond is shrinking, but like all markets, there are two sides to the equation that need to be unpacked. 
Is there a structural decline in IPOs?
Starting with IPOs, which are driven by several macro factors, the following chart clearly illustrates a few exceptional periods over the last 25 years, but looking at the last four years, we are well below the long-term average of initial capital raised at $4.9billion.
Some might not be surprised that the lack of listings is not just an Australian issue, but is seen in other jurisdictions around the world, from London to New York and Toronto. One outlier to this trend is the Nasdaq (depicted in the red line below), which is not unexpected given the growth and widespread adoption of technology, as well as investors’ strong appetite for technology-related companies over the past decade.
There are a number of factors that could be driving the lack of new listings, and while it is difficult to pinpoint some aspects at specific points in time, some of the reasons may include:
- increased regulatory and compliance burden;
- higher costs to being listed than staying private; and
- the rise of private equity and the ability to access capital.
Who else is fishing in the same pond?
Listings are one side of the equation; the other side relates to ‘whales and sharks’ that might be fishing in the same pond. For a long time, Australia has been a great hunting ground, given the high number of quality businesses.
The chart below outlines 25 years of M&A activity across the ASX. Clearly, a few large deals skew the results; however, over this period, the average number of deals per year has been 65, collectively worth $35.1 billion. As noted above, this represents 7 times the average capital raise for new listings per year.
Should investors be concerned?
Yes and no. Firstly, there is no doubt there has been a structural change in the desire to list, driven by several factors, including the ability to access capital, which allows companies to stay private for longer. The one piece that remains unknown is the ability for private equity firms to continue to fund and acquire companies while not using the listed markets as an exit strategy. Without the listed markets, private equity firms will have to rely on a ‘pass the parcel’ approach to continue generating significant returns.
Counter to the above, Virgin Australia Ltd (ASX: VGN) is a great example of a company that was plucked from the ASX boards in distress but has since returned this year, and it is worth noting Virgin’s share price is +14% since relisting in June 2025.
However, that only addresses the PE side. In terms of listings and compliance hurdles, the ASX announced in the middle of the year that it is trying to address the compliance burden by offering a fast-track program. We are yet to see this in action, but we do have high hopes that this can provide a steady pipeline for future IPOs.
Finally, IPOs are tied to macro factors and investor sentiment, which one could argue has been subdued given high inflation, uncertainty around interest rates and geopolitical unrest, which subsequently creates earnings uncertainty. We have, however, seen several IPOs this year – two of decent size are Virgin Australia Ltd and Gemlife Communities Ltd (ASX: GLF), which raised $650m and $750m, respectively. Furthermore, several names continue to be mentioned as potential candidates who plan to list within the next 6-9 months.
For the companies that do remain, we strongly believe that the ASX remains a great hunting ground for all types of investors, as the hurdle to attract and retain investors’ capital should continue to rise. This, in turn, should mean companies derive a higher premium in terms of the multiple investors have to pay for a growing stream of earnings. A shrinking pond can increase competition for quality assets, which in turn pushes prices higher; however, when fundamentals re-rate faster than prices, opportunities emerge. For long-term investors, that can be a very attractive setup.
Important Information: This material has been prepared by NAOS Asset Management Limited (ABN 23 107 624 126, AFSL 273529 and is provided for general information purposes only and must not be construed as investment advice. It does not take into account the investment objectives, financial situation or needs of any particular investor. Before making an investment decision, investors should consider obtaining professional investment advice that is tailored to their specific circumstances.
