NASDAQ CEO says investors are dealing with a ‘soup’ of macro-issues, 'hard' to model the future of a company

NASDAQ CEO Adena Friedman joined "The Claman Countdown" to discuss the status of the IPO market and what investors can anticipate following an extremely volatile year in 2022.  

Friedman explained that investor demand struggled in 2022 because of the "soup of macro-issues" that catastrophically blurred their ability to determine a company's future.

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"I'm with investors over the last year, they've had to deal with a rising interest rate environment, a rising inflationary environment, you know, geopolitical unrest and frankly, the recovery from the pandemic. And what that means, you know, fiscal stimulus is not as strong. You also have, you know, other changes in the macro dynamics. Right. So they're dealing with kind of what I call a soup of macro issues, makes it really hard for them to sit down and model the future of a company," Friedman explained, Wednesday. 

Host Liz Claman noted the "stunning" difference in the IPO markets from 2021 to 2022, a dynamic that Friedman argues is "important to understand" before investing. 

"So, it's as we always say, it's a supply and demand situation. There are about 200 companies on file to go public on NASDAQ. And so, as we look at the pipeline of supply, it's a really great, really strong pipeline of companies who want to tap the public markets. But then you need to have demand," the NASDAQ chair explained.

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Due to the lack of demand from "nervous" investors, Claman noted, some companies are decided to pull their IPO's, thus leading to more uncertainty and concern.

For optimal results, Friedman urged investors to understand the cost of capital, the potential growth of the business, along with the inflationary environment that the company is going to operate in before investing. 

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However, in 2022, all of these factors were "unknowns," making it very difficult to gauge the prosperity of a company. 

"As we go into 2023, we're still dealing with all of that. But I feel that it's likely that more of those unknowns to become known. We will probably see where the interest rates top out. We'll see a decline in inflation. The geopolitical situation is at least more known now, and the pandemic is further behind us," the NASDAQ president continued.

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With this, Friedman predicts that in 2023, investors will have a much better grasp on how they can "underwrite" market deals. 

"So that I think, will give investors better ability to figure out how they underwrite deals. So we are hoping, we don't know, but we're hoping we'll see more vibrant IPO environment the second half of the year for sure," Friedman concluded. 

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