Four things to know about PAG’s IPO plans

The Asian buyout, credit and real estate giant will use most of its IPO proceeds to seed new strategies, according to Hong Kong Stock Exchange filings.

Hong Kong’s PAG is set to become the latest alternatives heavyweight to go public.

The firm filed for an initial public offering on the Hong Kong Stock Exchange last week with Goldman Sachs Group and Morgan Stanley as joint sponsors of the share sale and UBS as financial adviser. The heavily redacted document did not provide financial details or a timeline, though PAG is expected to seek as much as $2 billion from the listing, Bloomberg reported.

PAG, which had $50 billion of assets under management and $17 billion in private equity as of end December, is one of several brand-name firms to hold or consider an IPO in recent months. TPG raised $1 billion via a December listing and CVC Capital Partners is expected to hold a multi-billion-euro listing in Amsterdam.

Here are four things to know about PAG’s IPO.

Use of proceeds

Approximately 75 percent of capital raised in the IPO will be used to seed new strategies, according to the prospectus. This includes setting up “complementary and inorganic bolt-on opportunities to enrich our platform and regional expertise”. PAG has not yet identified any specific target of potential merger or acquisition.

Across its core strategies of PE, real assets and credit and markets, PAG will also look to offer LPs permanent capital vehicles, continuation funds, separately-managed accounts, and a variety of co-investment opportunities, it said.

The remaining 25 percent will help build the firm’s infrastructure across technology, research and development, and ESG initiatives.

Making an impact

The firm will combine all ESG efforts, including due diligence, deal structuring and value creation initiatives across its various strategies, under one comprehensive programme: PAG Impact.

The platform will also launch dedicated ESG and impact-focused funds and investment products, although a timeline for these was not indicated in the filing document. PAG’s ESG priorities include reducing energy consumption, increasing diversity and enhancing corporate social responsibility at the group level.

Voting structure

The investment firm, which has $50 billion in assets under management and 30 active funds according to Friday’s filing, will adopt a weighted voting rights (WVR) structure upon going public. PAG’s share capital will comprise Class A shares and Class B Shares, the former entitling the holder to exercise one vote and the latter entitling the holder to exercise 10 votes on any resolution tabled at its general meetings, except for those related to reserved matters.

The firm’s founders Weijian Shan, Christopher Gradel and Jon-Paul Toppino will remain as controlling shareholders under the WVR structure.

PAG will apply a time-based sunset provision of its WVR structure after 10 years with a single five-year extension, which will mean the automatic conversion of super voting rights to regular voting rights on a “one-share, one-vote” basis.

Regional risks

Policy changes and regulatory reform by governments in Asia-Pacific and globally may create regulatory uncertainty for the firm’s strategies and investments and affect future returns, PAG noted in the document. Additional risks in the region include fluctuations in currency exchange rates, higher rates of inflation, higher transaction costs and political hostility to investments by foreign or alternative asset investors.

Chinese policy changes, such as tightened legal restrictions and longer approval procedures, could also impact the firm’s ability to raise capital.