Good companies go private, loss-makers go public

Sara Allen

Livewire Markets

Once the domain of institutional investors, private market investing is going mainstream and may even reach a value of $30 trillion in the years ahead. Urs Wietlisbach, Co-founder at Partners Group, views private markets as the new traditional asset class and believes investors can find better opportunities in private markets, not public.

“Good companies go private because it’s much more efficient to run a company and not-so-good companies, loss-making companies, go to the market.”

He points out that many recent IPOs have been loss-makers, such as Rivian or Doordash.

According to Wietlisbach, the investment space has become much more dynamic. Where once, deals might take 6-9 months to finalise and managers could take a more passive approach, today’s private market investors are required to be proactive and move quickly on opportunities with deals taking 6 weeks.

In this edition of Expert Insights, Wietlisbach discusses the changing role of private markets, the outlook and the challenges for investors in this space.

Key take-outs:

  • Private markets are typically more efficient as they require less compliance and administration compared to public markets. It has become the new traditional asset class.
  • The rapid growth of this asset class may see it reach $30 trillion in assets under management in the future.
  • The rapid growth of this asset class requires investors to be highly proactive and rapid in transactions compared to a more passive approach in the past.

Edited transcript

What are the roles of public and private markets today compared to the past?

It has shifted quite dramatically. In the past, public markets were for companies who make earnings. Today, if you look at the last three years, public markets, most of the IPOs were loss-making companies like Rivian or DoorDash. And private equity is today the new traditional asset class, because private equity invests in real companies with real earnings, and today private equities in each sector globally, small-cap, mid-cap, and large-cap. So, that's the new traditional asset class.

Why has the number of public companies in the US fallen 50% in the last 25 years?

This is one of these reasons public companies make it very difficult to run companies through compliance and so on, so good companies go private because they like the private markets better because it's much more efficient to run a company. And I call it not so good companies, loss-making companies go to the market, so I guess that's one of the reasons. And they also disappear, some of them, the loss-makings from the public market again.

How do you see private markets going in the next five years?

It has a further growth. You see that in the last two decades, private equity always tripled per decade. And the reasons that I said before, institution clients are increasing, now retail, high net worth comes into it, SMSF, defined contribution comes into it. There's no reason, and the forecast says, "Well, it will triple and then it's going to be a 30 trillion market, the private equity market."

What challenges do you see for private market investors going forward?

The big challenge is what I said before, to speak growth. Today the market has grown, so today you need to be much more active than you used to be. In the old days it was easy, you just took a company levered it up, today the leverage is only 50% on average, that's a decent leverage, not too high. But the problem is to turn around, when a company is shown to you, you used to have six, nine months to make a decision, today it's six weeks.

And so you need to proactively source transactions and working on transactions before they come up for sale. That's the big difference today. And I would say about 70% of the private equity, cheap is out there, are still in this old mode. And about 30%, including us, are really just proactive, and that's really important if you want to have any returns in the future.

What tips do you have for private equity investors?

Pick the managers who are having an active approach. The easiest thing to find out, if they are really active, is take investment professionals per assets on the management. If they have enough they should be active, but there are many players who have too much assets in the meantime for two small teams, and they can be only passive. And being a passive private equity investor is not going to make you happy as an investor.

Learn more about Partners Group Australia

Partners Group are one of the largest private markets investment managers in the world. They have recently launched the Global Income Fund - Unlisted in Australia. To learn more, please visit their website. 

Equity Trustees Limited (“Equity Trustees”) (ABN 46 004 031 298), AFSL 240975, is the Responsible Entity for Partners Group Global Income Fund and Partners Group Global Income Fund - Unlisted. Equity Trustees is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT). This document has been prepared by Partners Group Private Markets (Australia) Pty Ltd ACN 624 981 282 AFSL 509285 (“PGA”), to provide you with general information only. In preparing this document, we did not take into account the investment objectives, financial situation or particular needs of any particular person. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Neither PGA, Equity Trustees nor any of its related parties, their employees or directors, provide any warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Product Disclosure Statement before making a decision about whether to invest in this product. The advice provided in this document is provided by PGA. Any advice provided is general financial product advice only and does not take into account your objectives, financial situation or needs. Before acting on the advice, you should consider how appropriate it is having regard to your objectives, financial situation and needs. You should consider the product disclosure statement for the fund, and consider talking to a financial adviser before making a decision to invest in, or continuing to hold, interests in the fund. Interests in the fund are issued by Equity Trustees. The product disclosure statement for the fund is available at PGA can be contacted via PGA can be contacted via PGA has been appointed as the investment manager and the promoter of the interests in the Partners Group Global Income Fund and Partners Group Global Income Fund – Unlisted by Equity Trustees in its capacity as responsible entity of the Partners Group Global Income Fund and Partners Group Global Income Fund - Unlisted. PGA may receive fees in those roles. These fees will generally be calculated as a percentage of the funds under management within the Partners Group Global Income Fund - Unlisted. See the Fees and Other Costs section of the PDS for further information about the management fee charged by the investment manager. You may request particulars of the fees that are paid to PGA and its related companies within a reasonable time of receiving the advice contained in this document. The Partners Group Global Income Fund – Unlisted's Target Market Determination is available A Target Market Determination is a document which is required to be made available from 5 October 2021. It describes who this financial product is likely to be appropriate for (i.e. the target market), and any conditions around how the product can be distributed to investors. It also describes the events or circumstances where the Target Market Determination for this financial product may need to be reviewed. Note: all references in this document to Portfolio refers to the portfolio of investments within the PG Global Income Investments Loan Strategy Designated Activity Company ("DAC"). Partners Group Global Income Fund and Partners Group Global Income Fund - Unlisted invest directly into the DAC providing indirect exposure to the Portfolio attributes detailed in this document.

Sara Allen
Content Editor
Livewire Markets

Sara is a Content Editor at Livewire Markets. She is a passionate writer and reader with more than a decade of experience specific to finance and investments. Sara's background has included working at ETF Securities, BT Financial Group and...

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