Nasdaq chief executive Adena Friedman is wrapped in a woody Washington steakhouse on a steamy August afternoon, slamming her fist on a table over frustration that a vibrant corner of the economy is not available to average investors.
The number of public companies is a fraction of what it was two decades ago, Friedman says. Too many businesses are staying private to avoid media scrutiny and government regulation. Early investment opportunities in growth companies have grown scarcer for people like you and me.
“Do you want to create more opportunity for the average investor to be able to benefit from the birth of these companies?” says the 49-year-old who oversees the stock exchange, a high-tech business where millions of people buy and sell ownership stakes in companies that amount to trillions of dollars a year. “To do that, you really need to bring companies back into the public market. You need to make the public markets more competitive.”
American public companies are surfing one of the biggest wealth-investment waves ever. Stocks are worth nearly $30 trillion more than they were during the Great Recession.
But the heavily regulated exchanges where Apple, Facebook and Disney are traded are losing business to a flood of money from venture capital, sovereign wealth and private investors.
Friedman is referring, in part, to “unicorns,” the privately held start-ups worth $1 billion or more. Think Airbnb, SpaceX, Slack Technologies, Flipkart, Stripe — all off-limits to retail investors who don’t have the inside track to invest.
Take Uber, the ride-hailing juggernaut. Some estimates have placed the value of its private shares as high as $72 billion. Some early-bird private investors who had the resources and contacts — and stomach for risk — have been selling their shares in the nine-year-old company. It’s founder cashed out $1.4 billion of his private stock last spring. It hasn’t even hit the stock market yet: Nasdaq and rival New York Stock Exchange are in a death struggle to win the right to list it and other unicorns.
“If we have to wait until companies are fully mature before they are ready to go public,” she said, “then you’re taking investors away from the biggest growth years of these companies.”
“She’s right,” said Microsoft chief executive Satya Nadella, a fellow executive who shares conversations with Friedman in which they pick each other’s brains on technology.
Nadella calls the decline in companies going public “a bad trend.”
“It’s important for us to maintain whatever the right balance is” between number of public and private companies, he said. “But more importantly for the right opportunities to be available for the broad investor base. That’s what I think has made our economy as vibrant as it is.”
Friedman is a missionary. To her, stock exchanges are wealth-redistribution vehicles that can make the little guy rich, or at least richer. Friedman grew up in a financial family. It’s a noble profession to her.
“Nasdaq is really an engine for capitalism,” she says, waiting to dig into her Cobb salad. “It is the core engine. It sits in the center, and it allows for all those entrepreneurs to come to a place and find money. That’s a great thing for society.”
The missionary pivots to a place where many of her brethren refuse to go: politics.
“It bothers me so much to see the Democrats leaning so far to the left that they are rejecting the notion of competition and capitalism as part of their mantra,” said Friedman, a registered Democrat. “To make an enemy out of business and the capital markets as the engine for capital formation that fuels business is counterproductive.”
The number of public companies is shrinking: The Wilshire 5000 total market index of all the U.S. public companies should be renamed the Wilshire 3,611.
To reverse that trend, Friedman says regulators, shareholders and the media need to let the businesses breath. Limiting frivolous lawsuits would be a start. Relaxing the detailed quarterly report to a basic filing and relying more on a six-month deep dive might help.
“The minute you go public, the media has been scrutinizing you in a way that you’ve never experienced in your lives,” she said. “You’ve got the government coming at you and asking for a whole bunch of information.”
The fist comes down like Whac-A-Mole.
“At some point, the company goes, ‘Why the hell did I ever go public?’ ”
The Nasdaq that Adena Friedman took over on Jan. 1, 2017, is a far cry from the clubby, old boys’ network that defined stock exchanges of decades past. It’s night and day from its rival, the New York Stock Exchange, at 11 Wall St.
The NYSE — known as the Big Board — prefers the august “trust me” tone that reminds you of your local banker when you were growing up. It oozes tradition. It has the computer chops, but it also has the wooden floor at the Wall Street neoclassical headquarters animated by brokers and traders in action.
Nasdaq is the bold, bright, neon glitz that lights up a corner of Times Square screaming, “Look at me!” It’s pretty peopleless. Much of its operation unfurls in massive data centers located god-knows-where that process billions of data bits per second. It’s mantra is, “Rewrite tomorrow.”
“Nasdaq was a boutique,” said Sandy Frucher, Nasdaq vice chairman. “It has one product in one place. It was a big product and big place, but it was equities in the United States.”
Friedman is ambitious. She seems to have data bits running through her veins.
“Combining market structure and technology just gets me going,” she said.
She worked at Nasdaq early in her career and then landed back there in 2014. Carlyle Group, her employer at the time, hired a bigwig from JPMorgan Chase and placed him between Friedman and the executive suite. She left Carlyle within three months and became the heir-apparent and chief negotiator to then-Nasdaq President Bob Greifeld.
“I first met Adena when Bob was still the CEO,” Nadella recalled. “I had become CEO of Microsoft and so I visited their offices. And it was clear to me even then that Adena was obviously driving a lot of the product strategy and their technology strategy.”
Friedman knew diversifying Nasdaq into a technology company was the key to its survival and growth.
“Exchanges are like utilities,” said Colin Plunkett of Morningstar. “You can only grow with the economy. Your ability to increase prices is quite limited. They are trying to expand beyond the exchange.”
Just a few years ago, IPOs and trades were 75 percent of Nasdaq revenue, and 25 percent came from other sources.
That has reversed.
About 75 percent of Nasdaq’s revenue now comes from clients beyond the 2,949 companies listed on its platform.
Friedman has reallocated resources to the faster growing businesses such as market data, analytics, and providing technology to businesses, governments and other exchanges.
Nasdaq powers nearly 100 markets and clearinghouses around the world, from the Borsa Istanbul to the SIX Swiss Exchange in Switzerland, to Australia, Hong Kong and Sweden. Nasdaq technology is used for betting on horse races and for monitoring cryptocurrency exchanges.
“She is out on the edge, doing things that haven’t been done in the past,” said analyst Richard Repetto at Sandler O’Neill.
Spencer Mindlin, a capital markets industry analyst, said one of Friedman’s advantages is she speaks the language of tech entrepreneurs.
“She may well have the right playbook focusing on technology,” said investor Ken Langone, a former member of the NYSE board of directors. “We are going to reach a point where it’s going to be one, huge electronic market.”
Friedman increased Nasdaq’s revenue 7 percent her first year. Profit increased 10 percent, the dividend rose 20 percent, to $1.46 a share annually.
“She’s doing well, but it’s still a ‘show me’ story,” Repetto said.
The boring technology side of the business takes a back seat to the competition between Nasdaq and NYSE for new companies to reel in the next Apple or Alphabet. It’s a no-holds-barred scrum. NYSE bagged Alibaba and Snap in recent years. Nasdaq nailed Dropbox and DocuSign.
“There’s clearly a battle competing for the same issuers,” said James G. Silk, an attorney at Willkie Farr & Gallagher.
The two exchanges don’t seem to like each other very much.
“It’s all about the past versus the future. They have their history,” said Friedman, firing a hard right at her 226-year-old rival. “They are about the past. They bring companies into their 200-year-old building and try to make them feel like they’re part of history. For us, it’s about the future.”
Nasdaq won the pure numbers race in 2017 with 111 new listings compared with NYSE’s 77. But NYSE’s 77 companies had a total market share of $33.37 billion compared with $15.75 billion for Nasdaq’s initial public offerings, according to Dealogic.
NYSE last year also edged out its competitor in the number of technology IPOs, which is Nasdaq’s historical sweet spot. NYSE took 19 technology companies public in 2017 with a total market value of $10 billion, compared with 18 for Nasdaq worth a total of $2.43 billion.
“When you look at 2017, 86 percent of IPOs’ new capital raised in the tech sector was raised on the New York Stock Exchange,” NYSE President Stacey Cunningham said. “I think that’s pretty forward-looking.”
Friedman has been capitalism’s advocate since she was a Baltimore kid, hanging out with her father at his investment headquarters on Saturdays and debating him at the dinner table.
Her father, David Testa, was an executive at T. Rowe Price asset manager and all in for capitalism. Friedman endorsed it — with reservations.
“Capitalism is consistent with the human condition, and it’s been consistent with human nature,” she said. “All that people want is an opportunity. A fair chance. They’re competitive by nature. That’s who we are.”
That said, “I recognized not everyone gets an equal opportunity to take advantage of it. Dad’s attitude was, ‘Work your way through it.’ ”
The CEO of Nasdaq is also one of the few women leading a major public company. Friedman says finance earns a bad rap from people who are in it only for the money.
“Part of it is making sure that you have mission-driven people,” she said. “Good people can do really well in this industry. I’ve had a great experience.”
Finance has returned the love. She lives with her husband, a lawyer-turned-potter, and two sons on one of the nicest streets in leafy Chevy Chase, Md., just a few steps from the District line. She also owns an apartment in New York, where Nasdaq headquarters is located.
Friedman earns a $1 million salary and can add $2 million at bonus time if her board of directors decides she earned it. She received a $6 million performance stock grant when she took the job in 2017.
“I work my ass off,” she said.
Ed Mathias is a well-known Washington connector and financier who has known Friedman since she was a child. Mathias worked with her father at T. Rowe Price.
“I’ve watched her over the years,” said Mathias, who was at the Carlyle Group when Friedman was its chief financial officer.
Her fluency with numbers translates into confidence.
“I’m a very analytical person. I love analyzing the financials. You always have to look at the numbers,” Friedman said.
Frucher recalls Friedman marching into a packed conference room clutching a foot-thick binder when Nasdaq was trying to buy the Philadelphia Stock Exchange. Friedman plopped the sheaf on the conference table and proceeded to reel off 38 discussion items without opening the book.
“She’s not intimidated by a male-dominated business,” Mathias said.
After Williams College and a master’s degree in business from Vanderbilt University, Friedman landed at Nasdaq at age 23.
She rose to head of corporate strategy, with an eye on bigger things. She left Nasdaq in March 2011 to be Carlyle’s chief financial officer. People who knew her at Carlyle said Friedman was open about her ambition to be a chief executive somewhere.
“Her aspirations were always to be a CEO,” Mathias said. “She wants to run the show and is well-qualified to do so.”
She’s no joke in the rest of her life, either. Friedman has a black belt in karate, can fly a plane (though she doesn’t anymore) and loves keeping score at baseball games — strikes, balls, outs and errors.
Friedman is a big believer in balance and spending time with her husband and two sons. She worked hard not to miss things that mattered to her kids. And she spends time with her husband at nearby Glen Echo Park, Md., a converted amusement park that is home to various artists and cultural groups.
“On the one hand, I go to New York. I go into this really high-powered situation,” she said, “and I come back here and I hang out with my husband at Glen Echo Park. And everything’s put in perspective.”
Frucher recalls negotiating a deal with several parties on the telephone “when I heard the other party say: ‘Dust him back! Dust him back! Slide!’ ”
Friedman had forgotten to mute her cellphone while keeping score at her son’s baseball game.
“I loved those things because it showed I wasn’t talking to a robot,” Frucher said. “I was talking to a person in the other end of the phone.”