BENEFITS

Access to the best managers.  As a result of the investment banking and initial public offering process, only the best private equity companies are able to become public.

Access to Private Equity.  Opportunities to invest in private equity funds has traditionally been available to well connected, very large institutions.  These public companies are available to retail investors and institutions of all sizes with no minimum investment amount required.

Diversification.  A traditional private equity fund may invest in less than ten companies and are often concentrated by industry, stage and subject to vintage year risk.  By owning a small basket of these public stocks, investors can have exposure to hundreds of companies across various industries, countries, stage of investment and not be subject to the J curve effect.

Investment Horizon.  Private investment funds or partnerships typically have a fixed life of 8-12 years.  These public companies are perpetual investment vehicles with no set life.  Therefore, investments and liquidity decisions are based on the goal of maximizing long term return for shareholders.

Liquidity.  Equities are traded on public markets whereas private equity funds are typically purchased at the beginning of the funds’ life.  Investors in funds are paid back through distributions and may not withdraw their investment.

Permanent Investment.  These public companies are not required to spend a great deal of time raising capital.  Private funds may return proceeds of exited or sold positions back to investors.  These public companies may recycle or re-invest proceeds from liquidated investments.

Pricing.  Private equity funds and partnerships are typically priced quarterly and usually take 3 months for valuations/prices to be determined.  Pricing of investments within private funds is not scrutinized to the same degree or held to the same GAAP accounting standards as publicly traded private equity companies.  Within private funds there is great resistance to mark investments values downward.

Reasonable Fees.  Managers of private equity funds typically charge hefty fees based on fund size regardless of whether investments are made and are not typically impacted by performance of investments.  These public companies typically have tiered fee schedules based on success of the holding company, performance of portfolio investments, and/or the amount invested.

Time Weighted Returns.  Private funds and partnerships measure return by internal rates of return (IRR) without consideration for time.  Because public stocks are priced daily, investment returns are time weighted. 

Transparency.  Public companies are required to disclose financial conditions and their investments.  Activities of listed public companies and estimated values of investments can be observed on a timely basis. 

Yield.  Many of these public companies return investment income, dividends and interest to investors while retaining proceeds from liquidated investments.