Private equity might not stay as private in the new year as more sponsors tap into the public markets, starting with TPG, one of the largest buyout groups in the world.
Texas-based TPG, which has $ 109 billion (€ 96 billion) in assets under management, is the latest private equity firm to offer an initial public offering (IPO).
The company is expected to start trading on the Nasdaq this week, seeking a valuation of up to $ 9.5 billion.
Jeff Brown, CEO of Azimut Alternative Capital Partners, said Citywire that he’s been getting calls from bankers with ideas on how to tap into public markets.
There are also rumors that London-based CVC Capital Partners is gearing up for an IPO, which could value the company at $ 15 billion, according to one. Sunday opening hours report from December.
Elsewhere, Bloomberg reported that French group Ardian was start preparations for a potential list.
It’s ironic that such plans come at a time when more and more companies are choosing to remain private, thereby expanding investment opportunities for private equity funds, but it’s understandable.
Some of the largest private equity (PE) groups have been listed and have performed exceptionally well in recent years.
For example, over one year, Blackstone’s stock price is up 86%, while KKR’s is up 71.27%.
A recent analyst note from PitchBook revealed that beyond Apollo, publicly traded private equity firms have posted total returns of around 80% or more over the past year, making more than doubling the return of the S&P 500.
The industry has experienced significant growth. There is growing interest from investors from all walks of life, from institutions that had never invested in private markets before to individual investors who did not have access to them, and the market is likely to continue to attract assets. .
According to figures published by Schroders Capital and Preqin, there are now more than 5,900 private equity managers.
“The industry has grown and strengthened in terms of power and performance. A lot of this is driven by technology, ”said Hugh Elwes, managing director of investment bank Stephens.
“I guess the bigger and more established perform better, so more of them qualify for the list. In Europe it was probably less developed, but it is growing rapidly.
He added: “After seeing Bridgepoint succeed, some of the mid-size sponsors will be looking to get on the list now. This trend will continue to grow, there are a lot of successful sponsors whose partners will think, “yes please, I would like to capitalize my business”. The path to do so is well mapped out now.
IPO in 2021
Nearly 60 alternative asset management companies listed in 2021 on global stock markets, according to research on Morningstar.
These include high-profile IPOs like Bridgepoint and Antin Infrastructure Partners, as well as lesser-known names like Springvest in Finland and Feat Fund Investments in Israel.
It’s a mixed bag when it comes to stock price fluctuations, as most alternative asset managers listed in 2021 have seen their stock prices drop since their IPO.
This includes venture capital firm First Venture Sweden, infrastructure and commodities investor Mercuria Holdings, Latin America-focused Patria Investments, and Australia-based Touch Ventures.
But some have reaped the rewards, including Swedish venture capital firm Investment AB Spiltan and US firm Blue Owl Capital, which have risen 56.8% and 35.79% respectively since they started trading. .
Bridgepoint was launched in July and its shares soared early on, after the company raised £ 300million when it went public. But, since then, the share price is down 8.08% to 415.50.
Is it time to buy?
However, this market is an attractive investment for fund managers.
Vincent Durel, who heads the Fidelity Sustainable European Equity fund, invested in the IPO of Bridgepoint, but does not own any other private equity fund or alternative asset manager.
“We chose Bridgepoint because it has an attractive financial profile, as a highly recurring income business – around 80% of income is contractually locked into management fees – high return on invested capital, strong cash generation and a good track record, “he said. noted.
“Bridgepoint’s fundraising cycle is also expected to result in strong revenue and profit growth. The company has a strong track record of ROI, significant growth prospects and an attractive valuation at a significant discount to its peers. ‘
Private markets are generally an area of interest for Julian Cane of BMO Capital & Income Investment Trust. He doesn’t often invest in IPOs, but has chosen to participate in Bridgepoint’s.
Often he has said that he feels the IPO timeline is limited and does not provide enough opportunities to conduct his own due diligence.
However, he decided to invest in Bridgepoint because he felt he was familiar with the industry, due to a long-term stake in Intermediate Capital Group, and was able to complete the due diligence. on time.
He believes other similar businesses will be looking to make the list as well, but he believes they must be big and successful enough to make that leap.
“Otherwise, it’s a bit difficult to indicate a great longevity. This seems to be a factor over the last decade or so, good medium and large companies have grown better and faster than smaller ones, ”he said.
For an industry that has enjoyed staying in the limelight for most of its history, the IPO can create transparency issues, especially in Europe and about how much money executives make.
the Financial Time Previously reported on how Bridgepoint has kept private the share of profits earned by its executives in the form of deferred interest, even after its listing on the London Stock Exchange.
Swedish private equity firm EQT, listed in 2019, and France’s Antin group also do not disclose how much money their executives earn in deferred interest.
A private equity executive pointed out that disclosure requirements on the London Stock Exchange are much lower than in the United States, which may leave buyout groups free to choose what information to share.
They added that corporate governance can also be an issue for private equity firms going public. “Investors will tire of this and will want and demand better governance.”
Besides the management companies themselves, asset managers have listed portfolios, as in the case of Petershill Partners, listed by Goldman Sachs.
Petershill Partners is a portfolio of holdings in alternative asset managers. Its competitors include Blue Owl – formerly Dyal Capital Partners – and Blackstone Strategic Capital.
Brown of Azimut believes the listing of Petershill Partners could force Blackstone to pursue a similar move this year for its competing general partner activities.
But, in the long term, the listing trend will capture the entire private market sector. “There is a stock that is a listed private equity fund.
“It’s a complicated trust structure, but there will be more companies that look at how the quote trades and decide to do something like that with one or two of their own funds,” Brown said.
“They will also understand that they can continue to charge fees and raise funds in the capital markets.”