Publicly traded private equity

Last updated

Publicly traded private equity (also referred to as publicly quoted private equity or publicly listed private equity) refers to an investment firm or investment vehicle, which makes investments conforming to one of the various private equity strategies, and is listed on a public stock exchange.

Contents

There are fundamentally two separate opportunities that private equity firms pursued in the public markets. These options involved a public listing of either:

Business Development Companies

Historically, in the United States, there had been a group of publicly traded private equity firms that were registered as business development companies (BDCs) under the Investment Company Act of 1940. [1]

Typically, BDCs are structured similar to real estate investment trusts (REITs) in that the BDC structure reduces or eliminates corporate income tax. In return, REITs are required to distribute 95% of their income, which may be taxable to its investors.

As of the end of 2008, among the largest BDCs (by market value, excluding Apollo Investment Corp, discussed elsewhere) are: American Capital Strategies (Nasdaq :  ACAS), Ares Capital Corp. (Nasdaq :  ARCC), BlackRock Kelso Capital Corp, Gladstone Investment Corp (Nasdaq :  GAIN) and Kohlberg Capital Corp (Nasdaq :  KCAP).

Venture capital trusts

A venture capital trust or VCT is a highly tax efficient UK closed-end collective investment scheme designed to provide capital finance for small expanding companies and capital gains for investors. VCTs are companies listed on the London Stock Exchange, which invest in other companies which are not themselves listed.

First introduced by the Conservative government in the Finance Act, 1995 they have proved to be much less risky than originally anticipated. The last created VCTs to encourage investment into new UK businesses.

History

Although there had previously been certain instances of publicly traded private equity vehicles, the convergence of private equity and the public equity markets attracted significantly greater attention when several of the largest private equity firms pursued various options through the public markets. Taking private equity firms and private equity funds public appeared an unusual move since private equity funds often buy public companies listed on exchange and then take them private. Private equity firms are rarely subject to the quarterly reporting requirements of the public markets and tout this independence to prospective sellers as a key advantage of going private.

Blackstone Group IPO

Schwarzman's Blackstone Group completed the first major IPO of a private equity firm in June 2007. StephenSchwarzman.jpg
Schwarzman's Blackstone Group completed the first major IPO of a private equity firm in June 2007.

On March 22, 2007, the Blackstone Group filed with the SEC [3] to raise $4 billion in an initial public offering. On June 21, Blackstone swapped a 12.3% stake in its ownership for $4.13 billion in the largest U.S. IPO since 2002. Traded on the New York Stock Exchange under the ticker symbol BX, Blackstone priced at $31 per share on June 22, 2007. [4] [5]

KKR Private Equity

In May 2006, Kohlberg Kravis Roberts raised $5 billion in an initial public offering for a new permanent investment vehicle (KKR Private Equity Investors or KPE) listing it on the Euronext exchange in Amsterdam (ENXTAM: KPE). KKR raised more than three times what it had expected at the outset as many of the investors in KPE were hedge funds seeking exposure to private equity but could not make long-term commitments to private equity funds. Because private equity had been booming in the preceding years, the proposition of investing in a KKR fund appeared attractive to certain investors. [6] However, KPE's first-day performance was lackluster, trading down 1.7% and trading volume was limited. [7] Initially, a handful of other private equity firms and hedge funds had planned to follow KKR's lead but shelved those plans when KPE's performance continued to falter after its IPO. KPE's stock declined from an IPO price of €25 per share to €18.16 (a 27% decline) at the end of 2007 and a low of €11.45 (a 54.2% decline) per share in Q1 2008. [8] KPE disclosed in May 2008 that it had completed approximately $300 million of secondary sales of selected limited partnership interests in and undrawn commitments to certain KKR-managed funds in order to generate liquidity and repay borrowings. [9]

Less than two weeks after the Blackstone Group IPO, in 2007 Kohlberg Kravis Roberts filed with the SEC [10] in July 2007 to raise $1.25 billion by selling an ownership interest in its management company. [11] KKR had previously listed its KKR Private Equity Investors (KPE) private equity fund vehicle in 2006. The onset of the credit crunch and the shutdown of the IPO market would dampen the prospects of obtaining a valuation that would be attractive to KKR and the flotation was repeatedly postponed.

Response to private equity IPOs

The initial public offering completed by Blackstone intensified the level of attention directed toward the private equity industry overall as media commentators focused on the large payout received by the firm's CEO Steve Schwarzman. [12] Schwarzman received a severe backlash from both critics of the private equity industry and fellow investors in private equity. An ill-timed birthday event around the time of the IPO led various commentators to draw comparisons to the excesses of notorious executives including Bernie Ebbers (WorldCom) and Dennis Kozlowski (Tyco International). David Bonderman, a co-founder of the private equity firm TPG Capital, remarked, "We have all wanted to be private – at least until now. When Steve Schwarzman's biography with all the dollar signs is posted on the web site none of us will like the furor that results – and that's even if you like Rod Stewart." [12]

Meanwhile, other private equity investors would also seek to realize a portion of the value locked into their firms. In September 2007, the Carlyle Group sold a 7.5% interest in its management company to Mubadala Development Company, which is owned by the Abu Dhabi Investment Authority (ADIA) for $1.35 billion, which valued Carlyle at approximately $20 billion. [13] Similarly, in January 2008, Silver Lake Partners sold a 9.9% stake in its management company to CalPERS for $275 million. [14]

Additionally, Apollo Management completed a private placement of shares in its management company in July 2007. By pursuing a private placement rather than a public offering, Apollo would be able to avoid much of the public scrutiny applied to Blackstone and KKR. [15] [16] In April 2008, Apollo filed with the SEC [17] to permit some holders of its privately traded stock to sell their shares on the New York Stock Exchange. [18] In April 2004, Apollo raised $930 million for a listed business development company, Apollo Investment Corporation Nasdaq :  AINV, to invest primarily in middle-market companies in the form of mezzanine debt and senior secured loans, as well as by making direct equity investments in companies. The company also invests in the securities of public companies. [19]

See also

Related Research Articles

<span class="mw-page-title-main">Leveraged buyout</span> Acquired control over a company by the purchase of its shares with borrowed money

A leveraged buyout (LBO) is one company's acquisition of another company using a significant amount of borrowed money (leverage) to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loans, along with the assets of the acquiring company. The use of debt, which normally has a lower cost of capital than equity, serves to reduce the overall cost of financing the acquisition.

The Carlyle Group is a multinational private equity, alternative asset management and financial services corporation based in the United States with $376 billion of assets under management. It specializes in private equity, real assets, and private credit. It is one of the largest mega-funds in the world. In 2015, Carlyle was the world's largest private equity firm by capital raised over the previous five years, according to the PEI 300 index. In the 2023 ranking however, it had slipped to fifth place.

In the field of finance, private equity (PE) is stock in a private company that does not offer stock to the general public. Private equity is offered instead to specialized investment funds and limited partnerships that take an active role in the management and structuring of the companies. In casual usage, "private equity" can refer to these investment firms rather than the companies that they invest in.

<span class="mw-page-title-main">Kohlberg Kravis Roberts</span> American investment manager

KKR & Co. Inc., also known as Kohlberg Kravis Roberts & Co., is an American global investment company that manages multiple alternative asset classes, including private equity, energy, infrastructure, real estate, credit, and, through its strategic partners, hedge funds. As of December 31, 2022, the firm had completed more than 690 private equity investments in portfolio companies with approximately $700 billion of total enterprise value. As of December 31, 2022, assets under management (AUM) and fee paying assets under management (FPAUM) were $504 billion and $412 billion, respectively.

<span class="mw-page-title-main">Blackstone Inc.</span> American alternative investment company

Blackstone Inc. is an American alternative investment management company based in New York City. Blackstone's private equity business has been one of the largest investors in leveraged buyouts in the last three decades, while its real estate business has actively acquired commercial real estate. Blackstone is also active in credit, infrastructure, hedge funds, insurance, secondaries, and growth equity. As of June 2023, the company's total assets under management were approximately US$1 trillion, making it the largest alternative investment firm globally.

<span class="mw-page-title-main">TPG Inc.</span> American investment company

TPG Inc., previously known as Texas Pacific Group and TPG Capital, is an American private equity firm based in Fort Worth, Texas. The firm is focused on leveraged buyouts and growth capital. TPG manages investment funds in growth capital, venture capital, public equity, and debt investments. The firm invests in a range of industries including consumer/retail, media and telecommunications, industrials, technology, travel, leisure, and health care.

Jerome Kohlberg Jr. was an American businessman and investor. He was an early pioneer in the private equity and leveraged buyout industries founding private equity firm Kohlberg Kravis Roberts & Co. and later Kohlberg & Company.

Bain Capital is an American private investment firm based in Boston. It specializes in private equity, venture capital, credit, public equity, impact investing, life sciences, crypto, tech opportunities, partnership opportunities, special situations, and real estate. Bain Capital invests across a range of industry sectors and geographic regions. As of 2022, the firm managed approximately $165 billion of investor capital. The firm was founded in 1984 by partners from the consulting firm Bain & Company. The company is headquartered at 200 Clarendon Street in Boston with 22 offices in North America, Europe, Asia, and Australia.

<span class="mw-page-title-main">Goldman Sachs Capital Partners</span> Private equity firm

Goldman Sachs Capital Partners is the private equity arm of Goldman Sachs, focused on leveraged buyout and growth capital investments globally. The group, which is based in New York City, was founded in 1986.

A private equity firm is an investment management company that provides financial backing and makes investments in the private equity of startup or operating companies through a variety of loosely affiliated investment strategies including leveraged buyout, venture capital, and growth capital. Often described as a financial sponsor, each firm will raise funds that will be invested in accordance with one or more specific investment strategies.

<span class="mw-page-title-main">Apollo Global Management</span> American private equity company

Apollo Global Management, Inc. is an American private equity firm. It provides investment management and invests in credit, private equity, and real assets. As of 2022, the company had $548 billion of assets under management, including $392 billion invested in credit, including mezzanine capital, hedge funds, non-performing loans, and collateralized loan obligations, $99 billion invested in private equity, and $46.2 billion invested in real assets, which includes real estate and infrastructure. The company invests money on behalf of pension funds, financial endowments, and sovereign wealth funds, as well as other institutional and individual investors. Funds managed by Apollo have produced a 24% internal rate of return (IRR) to investors, net of fees.

AlpInvest Partners is a global private equity asset manager with over $85 billion of committed capital since inception as of December 31, 2022. The firm invests on behalf of more than 450 institutional investors from North America, Asia, Europe, South America and Africa.

A Business Development Company ("BDC") is a form of unregistered closed-end investment company in the United States that invests in small and mid-sized businesses. This form of company was created by the US Congress in 1980 in the amendments to the Investment Company Act of 1940. Publicly filing firms may elect regulation as BDCs if they meet certain requirements of the Investment Company Act.

<span class="mw-page-title-main">History of private equity and venture capital</span> Aspect of history

The history of private equity, venture capital, and the development of these asset classes has occurred through a series of boom-and-bust cycles since the middle of the 20th century. Within the broader private equity industry, two distinct sub-industries, leveraged buyouts and venture capital experienced growth along parallel, although interrelated tracks.

<span class="mw-page-title-main">Private equity in the 1980s</span> Aspect of history

Private equity in the 1980s relates to one of the major periods in the history of private equity and venture capital. Within the broader private equity industry, two distinct sub-industries, leveraged buyouts and venture capital experienced growth along parallel although interrelated tracks.

<span class="mw-page-title-main">Private equity in the 1990s</span> Aspect of history

Private equity in the 1990s relates to one of the major periods in the history of private equity and venture capital. Within the broader private equity industry, two distinct sub-industries, leveraged buyouts and venture capital, experienced growth along parallel although interrelated tracks.

<span class="mw-page-title-main">Private equity in the 2000s</span> Aspect of history

Private equity in the 2000s represents one of the major growth periods in the history of private equity and venture capital. Within the broader private equity industry, two distinct sub-industries, leveraged buyouts and venture capital expanded along parallel and interrelated tracks.

A club deal, in finance, refers to a leveraged buyout or other private equity investment that involves two or more private equity firms. It can also be referred as consortium or syndicated investment.

<span class="mw-page-title-main">American Capital</span> U.S. financial services firm

American Capital, Ltd. was a publicly traded private equity and global asset management firm, trading on NASDAQ under the symbol “ACAS” from 1997 to 2017 and a component of the S&P 500 Index from 2007 to 2009. American Capital was sold to Ares Management in 2017 at a sale price that totaled $4.1 billion. For those investors who bought American Capital stock in its August 29, 1997 IPO, and held their shares through the sale of American Capital on January 3, 2017, they received a 14% compounded annual return including dividends.

<span class="mw-page-title-main">PAG (investment firm)</span> Asian investment firm

PAG is an Asian investment firm that manages multiple asset classes, including private equity, private debt, real estate and hedge funds. It is considered one of the largest private investment firms in Asia.

References

  1. ↑ Companies must elect to be treated as a "business development company" under the terms of the Investment Company Act of 1940 (Investment Company Act of 1940: Section 54 -- Election to Be Regulated as Business Development Company Archived 2008-05-27 at the Wayback Machine )
  2. ↑ Photographed at the World Economic Forum in Davos, Switzerland in January 2008.
  3. ↑ The Blackstone Group L.P., FORM S-1, SECURITIES AND EXCHANGE COMMISSION, March 22, 2007
  4. ↑ SORKIN, ANDREW ROSS and DE LA MERCED, MICHAEL J. "News Analysis Behind the Veil at Blackstone? Probably Another Veil." New York Times, March 19, 2007.
  5. ↑ Anderson, Jenny. "Blackstone Founders Prepare to Count Their Billions." New York Times, June 12, 2007.
  6. ↑ Timmons, Heather. "Opening Private Equity's Door, at Least a Crack, to Public Investors." New York Times, May 4, 2006.
  7. ↑ Timmons, Heather. "Private Equity Goes Public for $5 Billion. Its Investors Ask, ‘What’s Next?’." New York Times, November 10, 2006.
  8. ↑ Anderson, Jenny. "Where Private Equity Goes, Hedge Funds May Follow." New York Times, June 23, 2006.
  9. ↑ Press Release: KKR Private Equity Investors Reports Results for Quarter Ended March 31, 2008 Archived March 20, 2009, at the Wayback Machine , May 7, 2008
  10. ↑ KKR & CO. L.P., FORM S-1, SECURITIES AND EXCHANGE COMMISSION, July 3, 2007
  11. ↑ JENNY ANDERSON and MICHAEL J. de la MERCED. "Kohlberg Kravis Plans to Go Public." New York Times, July 4, 2007.
  12. 1 2 Sender, Henny and Langley, Monica. "Buyout Mogul: How Blackstone's Chief Became $7 Billion Man – Schwarzman Says He's Worth Every Penny; $400 for Stone Crabs." The Wall Street Journal, June 13, 2007.
  13. ↑ Sorkin, Andrew Ross. "Carlyle to Sell Stake to a Mideast Government." New York Times, September 21, 2007.
  14. ↑ Sorkin, Andrew Ross. "California Pension Fund Expected to Take Big Stake in Silver Lake, at $275 Million." New York Times, January 9, 2008
  15. ↑ SORKIN, ANDREW ROSS and de la MERCED, MICHAEL J. "Buyout Firm Said to Seek a Private Market Offering." New York Times, July 18, 2007.
  16. ↑ SORKIN, ANDREW ROSS. "Equity Firm Is Seen Ready to Sell a Stake to Investors ." New York Times, April 5, 2007.
  17. ↑ APOLLO GLOBAL MANAGEMENT, LLC, FORM S-1, SECURITIES AND EXCHANGE COMMISSION, April 8, 2008
  18. ↑ de la MERCED, MICHAEL J. "Apollo Struggles to Keep Debt From Sinking Linens ’n Things." New York Times, April 14, 2008.
  19. ↑ FABRIKANT, GERALDINE. "Private Firms Use Closed-End Funds To Tap the Market." New York Times, April 17, 2004.


This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.