Public Investors Begin to Dump Private Equity Firm Interests

privateequityIn recent months, the rising tide of the stock market has permitted institutional investors whether public pension or sovereign wealth fund the ability to take their gains and move on. Private equity firms or the new moniker alternative asset providers sell stakes in their management company to large institutional investors for a variety of reasons. Examples that come to mind are the Blackstone Group, Silverlake, CVC Capital Partners, TPG and Providence Equity, selling firm stakes to pensions and sovereign wealth funds.

In many instances, these sovereign funds are limited partners in the management firms’ funds. The enticement of knowledge transfer and being the first to be included in a new fund commitment is alluring for a pension fund. For a private equity firm, their reasons for capital raises seem endless; however, first and foremost to provide money to expand their business. Other credible reasons could be a liquidity event for the owners, securing long-term limited partners for future funds or strategic partners for unique deals where government help is necessary.

When does a public investor exit their firm investment? One thing is that public funds want to capture return for their illiquid holding. A remedy for this includes the private equity firm going public, offering liquidity to current investors.

Lock-up provisions have prevented institutional investors from selling their ownership interests in private equity firms.

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