Morgan Stanley Eyes Startups Ahead of Potential IPO Rebound

After a lengthy coma, the IPO market may be coming around, and Morgan Stanley wants to be there when it wakes up.

As signs point to a initial public offering rebound in 2025, the investment bank is courting employees at start-up companies that are slated to go public. Last month, Morgan Stanley at Work, the bank’s workplace benefits unit, announced a partnership with the recordkeeping software firm Carta that will help the brokerage attract new clients. Morgan Stanley’s advisory unit is hoping to form new relationships with Carta’s clientele that are mostly wealthy executives and early investors at startup companies.

“We see signs of life in the IPO market,” said Scott Whatley, head of Morgan Stanley at Work. “We see tremendous opportunity for wealth management in the need for advice and specialized services.”

Teamwork Makes the Dream Work

While Morgan Stanley at Work already manages ownership records for private companies, Carta works with more than 45,000 startups that have a collective 1 million employees. Nearly 2,000 of those companies are already preparing for an IPO, Carta said in a statement. 

“It used to be that companies would go public after three or four years,”  Whatley told The Daily Upside, adding that private companies today are now 10 times larger than they were 20 years ago. That means much larger payouts for early-stage employees.

Need a 401(k)? The strategy is quite common as Goldman Sachs, JPMorgan, Bank of America, and Citi are all increasingly trying to utilize their investment banking relationships as referral opportunities for their wealth units, said Chayce Horton, Cerulli senior analyst. One of the top ways clients find an advisor is through their workplace’s retirement plan offering, he added.

This partnership will also help streamline the transition of these companies to public markets and introduce Morgan Stanley to a new crop of investors, said Vijay Raghavan, Forrester senior analyst. “The engine of growth for wealth management firms is client acquisition and the ideal ones to target are young, wealthy clients with a long path towards retirement,” he told The Daily Upside.

Call it a Comeback. With inflation down, major indexes riding high, and the Federal Reserve lowering interest rates, IPOs are poised to make a modest return next year. And that spells good news for wealth managers. According to data from Ernst & Young, IPOs may be on the rebound:

• So far this year, there has been a measured recovery for the IPO market with 121 launches raising more than $27 billion as of September.
• In 2021, there were 416 launches that raised more than $155 billion in proceeds. 
• Across 2022 and 2023, however, there were only 217 combined IPOs raising just under $31 billion.

“IPOs are liquidity events at heart, and those liquidity events are vital for unlocking private wealth,” Horton said. “A greater flow of IPOs will prove to be a tailwind.”