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PE acts its age

With the high-profile buyout of distressed investor WL Ross, the private equity business continues its on-going maturation. By Aaron Lovell.

Last spring, many leaders in private equity saw the initial public offering by New York-based LBO shop Kravis Kohlberg Roberts as the first step in the industry’s march towards increased institutionalisation.

“You’ll see others doing the same thing,” said David Rubenstein, a co-founder of The Carlyle Group, at a conference shortly after the announcement.

Noting the long-term appeal of the KKR vehicle, which is structured as a Guersey Limited Partnership and traded on the Amsterdam-based Euronext exchange, Rubenstein added: “I think that this will dramatically change the face of the private equity world as we know it.”

Ross: pioneering PE sale

Perhaps it comes as little surprised that, as distressed specialist Wilbur Ross sells his WL Ross & Company to New York Stock Exchange-listed investment manager AMVESCAP, similar notes are being sounded. In a conference call with reporters and analysts on Monday, Ross said the deal is indicative of the maturation of the private equity asset class.

“I believe it is the pioneering deal in what will be a number of similar transactions moving forward,” Ross said of the $375-million transaction. He also said that the up-tick in IPOs and M&A activity amongst buyout firms represent the “institutionalization” of private equity, adding that he feels it is a “healthy” progression.

The WL Ross transaction represents one of the most high-profile examples of a firm getting swallowed whole by a public entity, though private equity firms have acquired each other in the past, most notably the merger between Saunders Karp Megrue and Apax Partners last year.  

Other firms have found ways to take advantage of public money. A number of firms have tapped the public markets, particularly in Europe, including UK players like 3i, Candover and Permira.

There appears to be public appetite for these products, too. The listed KKR Private Equity Investors, for example, was originally launched with a $1.5 billion goal, but drew $5 billion in interest. The structure of the vehicle earmarks $2 billion for KKR’s 2006 Fund, a private limited partnership currently in fundraising mode. New York-based Apollo Management has raised $1.5 billion for a public vehicle also to be listed on the Euronext Exchange in Amsterdam.

The distressed sector is no different. While Japan-focused distressed group Ripplewood Holdings has long-since taken the plunge onto the public markets, rumours are swirling that tight-lipped distressed specialist Fortress Investment Management is also eyeing a public listing.

Evidenced by the Ross deal, these transactions represent a time of great change for private equity—but one that could also translate into big profits for professionals.