The new traditional asset class
Private markets are the new public markets – that’s the main takeaway from an upcoming white paper by Partners Group‘s Steffen Meister. The executive chairman, who dropped by PEI Group’s London offices this week, argues that public markets today largely back opportunistic IPOs, while private markets finance real economy investments and strategic growth plans. His white paper couldn’t come at a more opportune time: this week private equity has been making tabloid headlines for “swooping” on UK-listed companies, giving rise to some commentators claiming that PE’s dominance has “gone too far”.
It’s no secret that fewer companies are taking the IPO route. In the US, for example, the number of IPOs has halved since 1996, according to Morgan Stanley data from 2020, while in the UK, there were roughly 3,200 listed companies in 2007 versus around 2,000 today. Meister points out that in 2016, fundraising for private markets strategies overtook public equity issuance for the first time in history, heralding a fundamental shift in the roles of these two realms of company financing. A $10 billion business doesn’t need to go public anymore to service its financing; it can find this via private markets, he says.
“If you look at the actual role of the IPO, it’s probably more a technical exit window for venture and growth capital investors, but there’s not much of a role in financing the real economy,” he told senior editor Adam Le during a fireside chat in front of more than 200 PEI Group colleagues. “Today, private markets finance, to a large extent, profitable businesses, assets, day-to-day businesses in the services industry across the whole spectrum of private equity, infrastructure, real estate. In that sense, the share of financing of the real economy is much higher.”
A world in which large swathes of global economies are owned by private, and not public, markets is a world where a few things are going to have to change: increased transparency in private markets, for one, particularly if more non-institutional capital is going to access foundational companies – those that provide essential or everyday services and that engaged in the core products and services of a modern economy – via private markets over public ones. Look out for more of our thoughts on Meister’s white paper when it’s published next week.
Virginie Morgon, the former chief executive of Eurazeo, has made what appears to be one of her first public posts since being ousted from the firm. Writing on LinkedIn, Morgon summarised her thoughts on the start-up landscape from an awards presentation hosted by women’s growth accelerator JFD earlier this week. As global venture capital goes through something of a rocky spell, Morgon’s bottom line: fear not, the best companies will continue to find funding.
“We operate in a turbulent environment,” she wrote. “Stock market corrections, deceleration of the financing environment, including the unthinkable collapse of SVB a few weeks ago. What does this mean? The market wanted to make a correction, which makes full sense to me, because the valuation peak at the end of 2021 was unsustainable. Trees don’t go up to the sky, that’s what the last 18 months have reminded us, and that’s healthy.”
She adds: “The best models will find their partners, and find their funding. Let us not be slaves to an anxiety-provoking environment: the funding is there, the fundamental movements are there.”
One of Credit Suisse‘s former private capital advisory group co-heads has re-emerged at London mid-market shop CapVest, our colleagues at Buyouts report (registration required). Michael Murphy, who was included in our 2018 list of fundraising rainmakers, will serve as head of investor relations – a newly created role. CapVest closed its fourth flagship on more than €1 billion in 2019 and was raising its fifth fund as of 2021, according to PEI data.
Murphy is among a slew of executives who left Credit Suisse in the wake of the bank’s emergency acquisition by UBS for more than $3 billion. Credit Suisse co-head David Klein remains sole head of the group, which has been one of the biggest and busiest placement shops in the industry. PFG raised 441 funds with $636 billion in capital since inception in 1994. UBS now is in figuring out an integration plan for Credit Suisse executives and operations.
Keeping it local
Reputational and reliability risks are driving institutions to rethink investments in their portfolio associated with local and impact developments, colleagues from New Private Markets report (registration required). As Side Letter noted this week, Alaska Permanent Fund has paused new commitments to its in-state investment programme. Now, Greater Manchester Pension Fund has expressed concern that it is “unable to measure the impact” of its local area investments. Meanwhile, the programme’s lack of publicity means “stakeholders may be unaware of the potential positive impact the fund can provide and restricting our opportunity set”. To those ends, the institution has hired UK impact consultant The Good Economy to review and prepare a report on its contribution to the region.
Today’s letter was prepared by Alex Lynn with Adam Le, Carmela Mendoza and Madeleine Farman.