Friday Letter: A wild goose chase

According to the Encyclopaedia of Word and Phrase Origins by Robert Hendrickson, a wild goose chase was first used to describe a peculiar kind of 16th-century English horse race. The racers would set off into a forest following a lead horse, which could run in any direction.  

Samuel Johnson later re-defined the phrase in his 18th century dictionary as “a pursuit of something as unlikely to be caught as a wild goose.”

The phrase came to mind earlier this week when Doughty Hanson, the pan-European private equity group, dropped plans to float a €1 billion private equity fund on Euronext in Amsterdam the day before the structure was scheduled to start trading.

Doughty had been hoping to follow in the footsteps of Kohlberg Kravis Roberts and Apollo Management, the two US firms that between them raised some $7 billion dollars in Euronext offerings earlier this year.

But now that the firm run by Nigel Doughty and Richard Hanson has come away empty-handed, practitioners are wondering whether the offering was ever likely to succeed.  “After KKR and Apollo got their deals away, there weren’t that many mutual funds left with a big appetite for this kind of product,” was one insider’s observation earlier this week.

The fact that both KKR and Apollo are still trading at discounts to the issue price will not have done much to boost demand for Doughty’s listed product. In addition, secondary trading in KKR shares slowed dramatically post IPO, another reason why some private equity professionals deemed the outcome of Doughty’s two-week roadshow uncertain at best. 

Others pointed out that in going after the listing, Doughty took a risk it did in fact not need to take. The firm is currently raising Doughty Hanson Fund V, a conventional limited partnership with a €3 billion target. According to market sources, the campaign is going well, mainly because Funds III and IV are showing strong performance. 

Therein lies the upside of Doughty’s failure to raise public money. With the IPO plan back in the drawer, at least the firm can now concentrate on its LP proposition, unencumbered by the concerns of public market shareholders with limited understanding of private equity, and relieved of the pressure of having to invest a quoted pool of capital.

To mix a metaphor: now that it is out of the public market woods, Doughty can take extra care of the private market goose that laid so many golden eggs for the firm and its investors in the past.