The formulas, tricks and trade secrets of Private Equity

Listed Private Equity

Sample Chapter

Listed Private Equity (LPE) refers to private equity funds (and sometimes management companies) traded on public stock exchanges. Like any listed business, capital for Listed Private Equity (LPE) is first raised through an initial public offer (IPO) and then shares are traded on an exchange. Since private equity contains the word private and the equity underpinning a Listed Private Equity (LPE) fund is public, at first glance, the term LPE appears to be an oxymoron.

But, if you consider the term private equity to represent an investment methodology, rather than the source of the equity, Listed Private Equity (LPE) doesn’t seem like such an oxymoron after all. For example, do you think that a wealthy individual investing $100k into the local boulangerie represents private equity? The source of the equity is certainly private, but most of us understand private equity to be something else… a methodology perhaps. With that said, if the real value of private equity isn’t the source of funds, what difference does it make where the funds come from?

Maybe the more common argument against Listed Private Equity (LPE) relates to public reporting. The idea being that public reporting creates a short-term view and a short-term view is not always conducive to long-term value creation. That’s a valid argument, but valuation standards for traditional firms (such as the more recent FASB 157) also impose short-term reporting requirements. The difference is that traditional firms don’t have to report to the public, but is this such a big deal? I think the answer depends on regulation of LPEs and how managers of Listed Private Equity Funds (LPEs) react to public pressure. If the LPE has equity exposure to its investments and plays an active management role based on a medium-term outlook, then no, I don’t think Listed Private Equity is an oxymoron.

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