“The whole point of being a private equity (PE) company is the word ‘private’ – they can invest for the long-term, away from the scrutiny that comes with being a public company and all of the requirements that brings when it comes to reporting to shareholders and being accountable to them.
“We are also regularly informed that private equity is awash with cash and making good returns, so potential investors need to ask themselves why they should be buying if some existing shareholders are selling.
“Bridgepoint’s answer will be that private equity offers exposure to a non-correlated asset class – one which does not move slavishly in line with stock or bond markets – and therefore provides useful diversification across a balanced portfolio. Private equity managers will also point to their performance track record and show how patient investors in their funds can get premium returns, partly as an exchange for the so-called ‘illiquidity premium’ – investors cannot quickly withdraw money from private equity funds and their capital is often tied up there for long stretches. This represents a risk, but the returns offered by PE funds more than compensate for that danger, the PE giants will assert.
“Bridgestone is raising new money to fund its growth ambitions and also pay down debt, but some investors may remember Blackstone’s float back in 2007. The private equity giant floated when it looked like neither they nor financial markets could do no wrong, only for the Great Financial Crisis to come and blindside everyone almost straight away.
Source: Refinitiv data
“It all worked out well in the end but it was a hairy ride to start and investors could be forgiven for asking themselves if Bridgepoint knows something that they do not, especially as another PE firm floated in the same year, with equally bad near-term results (and even worse long-term ones).
“That was Fortress – now back in private hands after its acquisition by Japanese investment conglomerate Softbank for $3.3 billion in 2017 and currently involved in a bid battle to buy Morrisons.
“Investors will note how badly Fortress’ shares had done during their time on the New York Stock Exchange. They floated at $18.50 and quickly soared to $35 but then came the Global Financial Crisis, a period of poor performance from Fortress macro hedge funds in particular and Softbank snapped them up for around $8 apiece a decade later.
“Bridgepoint will counter such concerns by flagging how its specialist areas are quite different, but it does pitch itself as a specialist in alternative assets, a description which Fortress had been happy to embrace in 2007.”
