June 19, 2019
Private Equity: Publicly Traded PE Firms More Aggressive Fundraisers
This Institutional Investor article discusses a PitchBook report that found publicly traded PE firms to more aggressive in raising capital than their privately held counterparts. The report speculates that listed PE firms see themselves as “perpetually undervalued,” because shareholders & analysts “broadly misunderstand the variable cash flows that are innate to private equity.” So, in an effort to please them, these firms aggressively try to increase fund sizes to boost management fees & potential performance fees or carried interest.
The article notes that management fees are particularly favored by publicly traded funds, because unlike carried interest, they are recurring and predictable. This excerpt discusses the disparity in fundraising between the largest listed PE firms & the largest privately held firms:
The average flagship fund size for these listed firms was $18.9 billion between 2015 and 2018, while unlisted companies’ vehicles averaged $11.6 billion during that period. Public firms also grow their coffers by expanding product ranges, the report showed. Between 1997 and 2000 — before any of the four had gone public — they closed an average of 2.5 unique strategy offerings each, versus 1.5 for Advent, Bain, TPG, and Warburg Pincus.
That gap swelled impressively after Apollo, Blackstone, Carlyle, and KKR went public. During the 2015 to 2018 period, they averaged eight distinct strategy closures, while the unlisted group only edged up to 2.3. “The growth in strategy offerings and fund closings shows the public cohort’s desire to diversify the business and grow assets under management and accompanying management fees, while the private cohort has stayed leaner and more focused,” according to PitchBook.
– John Jenkins