Hedge funds enter the field of private equity through transactions with unlisted companies


Private equity update

Hedge funds are seeking to acquire unlisted companies, betting that market sectors that used to be unfavorable for the industry can now provide them with the kind of lucrative returns enjoyed by private equity competitors.

Famous executives such as Daniel Loeb of Third Point, Paul Marshall of Marshall Wace, and Mike Platt of BlueCrest Capital have all discovered this opportunity. They are now seeking to invest directly in fast-growing companies, especially in the technology sector, which have been privatized for longer periods of time and are already highly valued before going public.

Marshall Weiss emission Investing in two portfolios of healthcare and digital assets, this is the first time it has launched a tool for external investors to purchase private companies. A person familiar with the fund said that Third Point has been raising approximately US$300 million for its first specialized venture capital fund and has completed its first transaction.

Platt is one of the most successful macro traders in the world, and his company is now a private company Family office, Told the Financial Times that US private equity investment is now his “focus.” Paul Singer’s Elliott Management is already a long-term investor in private equity. He said in a letter to investors seen by the Financial Times this year that he would take a stake in private equity. Corporate and public-private transactions represent some of the best investment opportunities at the moment.

Cutler Cook, managing partner of investment firm Clay Point Investors, said: “The best public market investors must now participate in or at least understand the behavior of the private market, otherwise they will face huge blind spots.” “Some of the smartest investors I have realized that in the case of the public market, the performance of the private equity market is much better.”

The interest in private assets comes from some so-called Tiger cub — Julian Robertson’s famous disciple of Tiger Management — for example Chase Coleman of Tiger Global, Andreas Halvorsen of Viking and Lee Ainslie of Maverick. They are long-term supporters of unlisted companies and have earned tens of billions of dollars from these investments.

Many hedge fund managers who traditionally invest in the open market also envy the returns, fees, and investor inflows enjoyed by the private equity and debt industries in recent years.The assets in private capital are stand up According to Morgan Stanley, it went from just over US$2 trillion in 2010 to over US$7 trillion at the end of last year. According to HFR data, during this period, the hedge fund industry has grown from US$1.9 trillion to US$3.6 trillion, and performance is often lacklustre.

This is not the first time hedge funds have expanded to private equity and unlisted companies. Before the 2008 financial crisis, some managers used to acquire private companies to increase returns. When the crisis hit, this move backfired, many of these assets became difficult to sell, and investors demanded their money back.

Some managers put these assets in special tools, which usually take several years to end.Last year, the Reported by the Financial Times The GLG Partners fund, created by the assets purchased by star manager Greg Coffey before the crisis, includes a large number of shares in the Siberian coal mine, and only recently paid investors the last sum.

This time, managers argued that the funds did a better job in matching their holdings with investors’ ability to withdraw cash. Although some funds have invested in more liquid hedge funds, other funds such as Coatue and Tiger Global continue to develop independent private equity funds with longer investor lock-in periods.

A key reason for investing in public and private companies is the additional information that hedge funds believe they can collect, which helps inform other investment decisions. Unlike listed companies, which are subject to strict reporting rules, private companies can provide them with more information, not only about their own performance, but also about the industry’s sales and profit margins and other indicators.

Christian Vogel-Claussen, managing partner of Alanda Capital, a London hedge fund, said: “If you analyze public companies and private companies, you will see the whole picture.” The company has adopted a similar investment approach to some tiger cubs and has already acquired Debit card company Marqeta, TikTok owner ByteDance, and Digital Banking Corporation. Spin.

The founder of Third Point, Loeb, wrote in an investor report seen by the Financial Times that “the feedback loop between the private market and the public market has never been so obvious as it is today.”

Managers also argue that by investing in private companies, they can succeed before an overcrowded IPO. During the coronavirus pandemic, some people found more opportunities to do so, when the economic shock caused by the blockade made some private equity firms reluctant to invest money. For example, New York-based hedge fund Kora Management stated that it was able to invest in Indian food delivery company Zomato in the third quarter of last year when “the capital cycle was not so favorable.”stock Soar It debuted in July.

“In an IPO, as a hedge fund, the chance of getting a distribution is very small-so you have to get in touch as soon as possible,” Alanda’s Vogel-Claussen said.

Cédric Fontanille, head of investment tasks at Unigestion, said that hedge funds have found a “sweet spot” in small private companies that are outside the investment scope of large private equity funds, and private equity may not pay much attention to these companies.

However, some people in the industry believe that the reasons for turning to private investment are more pragmatic.

Hedge funds can be reversed by a bad deal or a quarter of their performance, while private equity managers lock up investors’ capital for much longer and require longer judgments. An industry insider said that the “career risk” provided by this long-term approach is much smaller.

Additional report by Miles Kruppa in San Francisco

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