Political theorist Francis Fukuyama, in his influential 1989 essay, “The End of History?”, posited that the great battle of ideas as to how humans should govern themselves was coming to an end.
What we may be witnessing is not just the end of the Cold War, or the passing of a particular period of post-war history, but the end of history as such… That is, the end point of mankind's ideological evolution and the universalization of Western liberal democracy as the final form of human government.
In that vein, I’d like to suggest that what we in private equity may be now witnessing is not just the passing of the boutique era, but the end of history as such. . . That is, the end point of GPs’ strategic evolution and the institutionalisation of multi-asset class management as the final form of the private investment firm.
Recently, two of the largest such firms announced their intentions to proliferate new business lines under their powerful brands.
In the case of Kohlberg Kravis Roberts, the decision to add to its storied buyouts platform strategies targeting infrastructure, fixed income, mezzanine, real estate, public equities, not to mention a capital markets advisory business, is a serious departure from its historic focus only on direct private equity investing. The incredible wealth creation opportunity presented by leveraging the KKR brand was too much to resist.
The Blackstone Group has long pursued multiple lines of business and been unapologetic about this. The firm today controls the largest private equity real estate business as well as a very substantial fund of hedge fund business in addition to its private equity business. Now the firm is adding more to this in the form of an infrastructure group and a clean energy platform.
It’s hard to find a large successful private equity firm today that, if it is not already managing multiple assets classes, isn’t planning on doing so. The argument against launching a branded family of funds is that the core private equity programme becomes undernourished and the franchise that has succeeded with private equity becomes unfocused.
There is however little evidence that doing things in addition to private equity harms either the private equity programme or the other activities. Likewise there is plenty of evidence that highly focused, we-only-do-private-equity firms are fully capable of fumbling their only ball.
More importantly, having multiple lines of business and a huge amount of assets under management makes for a nice IPO, which must surely be the end of history for private equity.