Going public in private

Monday 15 June was a red-letter day in the London-listed funds market. Apax Global Alpha (AGA), a new fund formed out of a special Apax Partners employee vehicle established in 2008, listed on the London Stock Exchange. The listing followed an initial public offering in which the fund raised the equivalent of €300 million, up 20 percent on its target.

The Apax offer was obviously appealing, backed by solid institutional support. Investec Wealth & Investments, Witan Investment Trust, Lexington Partners and Silverhorn took €135 million of the deal as cornerstone investors.

On the same day, the US’s HarbourVest Global Private Equity began meeting investors in London and Edinburgh to explain its London listing plans. The Boston-based firm is already listed on Euronext Amsterdam and the Specialist Funds Market in London, but needs to obtain shareholder approval in a vote ahead of its planned move to the main board in September.

A London listing is a hot ticket for PE firms eyeing the public markets for an alternative way to access long-term liquidity.

“The London market is a good one to list on,” says King & Wood Mallesons partner Michael Halford. “If you want to have true liquidity, you need to be in a reasonably deep market.”

AGA will use its new capital to continue the apparently successful strategy of its underlying fund, PCV Lux, which is now fully invested with little cash to spend. The €611.1 million vehicle has reported an unaudited annual internal rate of return of 30 percent, generated by its investments in four Apax buyout funds, listed equities and debt.

For its part, HarbourVest is not raising capital but hopes its London-listed market-cap will qualify it for the FTSE All Share Index, and perhaps the FTSE 250, HarbourVest associate director Richard Hickman told PEI in May. The fund is also trying to simplify the quote and enfranchise its shares, which are currently non-voting, said Hickman, who works on portfolio development.

For an investor seeking liquid access to the longer-term investments held by private equity, which market a fund is listed on is important.

“Most investors are London-based and they like sterling,” Altamir Gérance chairman and CEO Maurice Tchenio told the Listed Private Equity (LPEQ) annual investor conference held in late May. Altamir is listed on Euronext Paris and invests exclusively in Apax Partners’ funds. At the end of 2014, the fund’s net asset value per share was €16.04, while its shares traded at €10.32. “Even if you’re on Euronext, if you’re not in sterling it’s an additional burden. That’s why we’re trading at a discount.”

Listing has its costs. “There is a price to pay for access to a long-term pool of capital,” says Halford, citing shareholder activism. A listing leaves the door open to potential corporate raiders and an increased risk to the fund manager that unhappy shareholders will give them their marching orders.

The tussle between the long-term London-listed investment trust Electra Private Equity with the activist Sherborne Investors over control of the fund is a case in point. It is a clear example of the risks funds face when they expose themselves to public shareholders with an activist agenda.

In the midst of a dispute about board representation in which Sherborne is seeking two seats, Electra has conducted a review of its fee arrangements, capital structure and distribution policy and in February announced a new dividend policy. Sherborne, though, which now holds a 29 percent stake in the fund, is not giving up.

Listing a minority stake of 37 percent, Apax is immune to such a threat until the time its founding shareholders opt to exit. They are locked into the fund for a minimum of one year, with active employees tied in for longer at six years.

One burden Apax will share with all listed companies, though, is heavier reporting requirements. For any private equity fund shifting into the public spotlight, this demands a change in mindset.