THE PAST decade has not been especially kind to investors in private equity. Since 2010 they have poured $8trn into buy-out funds. Yet the returns, net of fees, that these vehicles have delivered to their “limited partners” (typically pension schemes, endowments and other institutions) have been similar to America’s comparable stock index—with vastly more risk.
Hence the boom in a more rewarding way to bet on private equity: investing in the asset managers themselves, rather than their products. On September 6th Goldman Sachs said it would float a new investment vehicle, called Petershill Partners, which will hold 19 minority stakes in private-equity groups and hedge-fund managers that together oversee $187bn. The listing, set to take place in about a month, could value Petershill at more than $5bn, making it the largest alternative-asset business listed in London. Until now its assets have been managed by Goldman’s Petershill arm, through private funds. The bank will continue to make investments on investors’ behalf after the listing, in return for fees.
The attraction of the strategy is clear. The profits distributed to limited partners by typical private funds are subject to the vagaries of the economic cycle, but the management fees levied by buy-out firms themselves—generally 1.5-2% of the capital committed by limited partners—are locked in as soon as funds are raised. And institutional investors, hungry for returns amid low interest rates, are piling into such funds. Assets managed by the 19 firms that Petershill part-owns have swollen by 91% in aggregate since the stakes were bought. That, plus fresh acquisitions, explains why the earnings Petershill distributes yearly to its own investors have more than doubled, to $310m, since 2018.
Yet until recently these investors could not easily cash out; Petershill’s private funds, like most others, have long durations. That lack of liquidity probably kept some investors away. Existing ones may have also been prevented from committing themselves to new funds. The listing partly solves that problem by letting existing investors sell down 25% of their stake in Petershill. It also lets the investment vehicle market its shares to retail investors, rather than just a rich coterie of Goldman clients. The unit also plans to sell $750m-worth of new shares, providing it with more capital with which to fund acquisitions at a time when private markets are especially lively.
Investors are ravenous for a slice of private-equity action. Shares in Bridgepoint, a British buy-out firm that listed in July, are 43% up on their debut price. The five biggest listed private-equity firms have more than tripled in combined value since March 2020. Antin Infrastructure Partners, a buy-out firm based in France, has unveiled plans to raise €350m ($413m) through an initial public offering in Paris.
Listing Petershill reflects Goldman’s desire to move away from volatile activities, including bond and equity trading, and focus instead on businesses that earn regular fees, such as asset and wealth management. Last month it agreed to buy the asset-management arm of NN Group, a Dutch insurer, for €1.6bn. Petershill’s suggested price of $5bn, at 22 times estimated net income in the year to June, looks cheap compared with other listed private-equity stocks: Bridgepoint, for instance, trades at more than 30 times earnings. All the better for the bank, however, if it helps peddle private equity to the masses. ■
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This article appeared in the Finance & economics section of the print edition under the headline “Raiding the stakes”