Private Equity Disruptors

Investment markets are not known for significant change and there are not many market disruptors in existence, apart from the exception of crypto currency, which could be loosely described as being connected to private investment markets, but it does sit in a class of its own.

Some new ideas come along from time to time that can shake up the sector, take Hargreaves Lansdown as an example. Lansdown have been very successful in digitising and improving the ease of access to markets for the private individuals.

Factoring in the relative lack of performance of equity markets, it’s no surprise that some institutional investors have opted to spend their money via the purchase of a fund management business itself rather than place its clients’ assets into the fund managers products and services.

Goldman Sachs have just announced that it will create a new vehicle which will hold a significant number of investments in private equity businesses and hedge funds. The value of the fund is said to be somewhere close to $200 billion and represents a departure for the company in that it previously relied mainly upon individual private sources of capital for its investment process.

The appeal lies in the flexibility of the sale or exit of investments and access to a portion of the fund managers own fees on a recurring basis, which would be significant in their own right for a multi-billion dollar tranche of capital invested. This moves on from previously where Goldman clients were locked in for significant periods on long term hold. In addition to setting up the new vehicle, Goldman will also sell shares in their NEW entity to ensure that they “clip the ticket” more than once.

The traditional stock market, particularly in the US, has almost out-performed the private equity sector, which has put many billions into deals which have not returned sufficient margins to justify the often-significant risks involved.

It is expected that more will follow. It continues to be the case that a relative post covid bounce back has seen increased availability of VC and PE capital with some funds increasingly under pressure to deploy their money, however, there continues to be significant caution over which projects they select as the spectre of further lockdowns and disruptions hangs over the economy and affects confidence.