Adveq will not be setting up a listed investment vehicle anytime soon, according to the private equity investment firm's CEO Sven Lidén.
“We don’t think it’s good for the investor,” Lidén says. “That’s why we never set up a listed private equity vehicle, although it would be very attractive to us because you get forever locked-up capital, at least theoretically.”
As an investor, the classic closed-ended private equity fund model “protects you a little bit from yourself”, Lidén said.
“You can read all the books about behavioural finance, when share prices go down you sell, when share prices go up you buy. That’s just human behaviour,” Lidén said. “When you come to the position that you come in a crash, you sell your listed private equity. You can’t sell – at least you can’t sell at a very good price – your non-listed private equity. So it disciplines you.”
When asked about those investors who put uncalled capital committed to closed-ended funds to work in listed private equity, Lidén said it “tends to be people with a short memory”.
“That always works except for in a crisis,” he said. “What people have forgotten is that in 2008, listed private equity fell by 80 to 90 percent. That’s not what you want, especially not if you have commitments that you want to pay with that, because then you don’t have the money to pay the commitments.”
Listed private equity subsequently recovered over the course of the following five years, but that was little comfort to those investors who hadn’t held on to their stakes.
Lidén also doesn’t see a market for longer-term funds, such as the $5 billion vehicle put forward by Carlyle last November that can hold stakes in companies for as long as 20 years.
“Of course we want to have clients that stay as long as possible, and to legally bind them for a longer term is attractive as a business proposal,” Lidén said. “I don’t really see what’s in it for the client in that respect. I think private equity’s long term enough that you don’t get into these timing issues.”
Investors should have the option to change who they partner with every investment period; after all, the life of a private equity fund is more than enough time to change your opinion about a GP.
“I hope that no Adveq client will ever change his opinion about Adveq, but I think they should have that option and not commit themselves [to] staying with Adveq for the next 30 years, because 30 years is just a very long time. Thirty years ago there was no internet.”
The lower fees that firms tend to offer in exchange for a longer lock-up period is “not a good trade-off for the client”, Lidén said.
Look out for PEI’s full interview with Lidén, managing director and co-head of investment management Rainer Ender, and managing director and head of Europe Tim Creed in the November issue.