PE’s sudden enthusiasm for going public seems a little quixotic
By Paul Mackintosh - 07/05/12
The long-awaited, long-drawn-out listing of the Carlyle Group has finally happened: Carlyle’s common units began trading on NASDAQ on Thursday, at US$22 per unit. Priced at the bottom of its indicative range, the listing at least was spared the ignominy of falling below its offer price: at times it rose by 45 cents, but finished its first day up by only 5 cents.
Carlyle co-founder David Rubenstein, long a tireless stalwart of the speaking circuit, was out in April promoting his own firm to Wall Street in April. The banking community, staunch supporters of private equity giants, fielded 21 managers and marketers for the float. And given the poor performance of Carlyle’s peers since listing, it says much that they were able to sustain this level of interest, not least given the voting structure of the company post-listing. Carlyle’s common units give shareholders limited voting rights: 90% of votes reportedly remain with Carlyle’s founders and key management.
Carlyle currently quotes its assets as $147 billion ‘across 89 active funds and 52 fund of fund vehicles’. The flotation – roughly 10% of the company – raised $671 million: a far cry from the c.$18 billion valuation put on the group by Saudi Arabia’s Mubadala Development Company in its 7.5% stake purchase in 2007.
Prior to the IPO, Carlyle went on an asset-buying and diversification spree that also fulfilled what many saw as its strategic agenda to become a one-stop-shop for major institutions (especially US pension funds) looking for exposure to alternatives. The acquisition of European fund of funds leader Alpinvest (itself already an investor in Carlyle funds) in a spinout partnership with Alpinvest management, brought some €40 billion (US$52.6 billion) of assets into the Carlyle fold. Carlyle has also taken stakes in hedge fund managers Claren Road Asset Management and Emerging Sovereign Group. However, all of this seems to have done little to bolster enthusiasm for the stock. Carlyle remains very much a private equity play in investors’ eyes, discounted along with the rest of the listed private equity sector for complex and opaque financials. And superior breadth of capabilities has not helped the stock performance of Blackstone, for example, which has fallen 56% since it listed in 2007. It can only fuel doubts, though, about the industry’s core value proposition – at least in a public markets context.
Private equity’s sudden enthusiasm for going public after long preaching the virtues of privatisation and value creation away from the quarterly-results treadmill always seemed a little quixotic, to put it mildly. Hopefully, this marks the end of a trend that has done little for the industry, and that may not do much for its shareholders either. Sadly, with TPG Capital founder David Bonderman publicly pointing out the advantages that public markets funding gives to competitors, this hope may be premature.