IPOs and Other Nontraditional Fund-Raising Methods of Private Equity Firms
PRIVATE EQUITY: FUND TYPES, RISKS AND RETURNS, AND REGULATION, pp. 31-51, D. Cumming, ed., Wiley Kolb Series in Finance, 2010
30 Pages Posted: 19 Mar 2009 Last revised: 4 May 2010
Date Written: September 10, 2009
We initiate a discussion on the new trends in private equity fundraising practices. Private equity industry in the U.S. has witnessed tremendous growth in recent years fueled by the availability of cheap credit during the early 2000s. However, a combination of tightening credit conditions and the eagerness of existing investors to sell out led private equity firms to look for alternate sources of funds such as listing their shares on stock markets and attracting investments from passive investors like Sovereign Wealth Funds. We review the short-term performance of IPOs of Blackstone group and Fortress group, two leading private equity firms in the U.S. While the initial evidence on the success of these IPOs is not encouraging, we argue that the prevailing market conditions played an important role in explaining their underperformance. We substantiate our claim by analyzing the long-term performance of 3i group, a U.K. based private equity firm which has been listed on the London Stock Exchange for over 15 years. Finally, we briefly discuss the evolution and structure of Sovereign Wealth Funds (SWFs) and their impact on the private equity industry. SWFs are acting as both complements and substitutes to private equity industry by being a source of funds and at the same time by buying equity interests in individual companies.
Keywords: IPO, Private Equity, Sovereign Wealth Funds
JEL Classification: G15, G24, G29
Suggested Citation: Suggested Citation