I'm curious why institutional investors would invest in a publicly-traded hedge fund's stock, like Sculptor Capital Management, when they can just copy their strategy in-house (if they have the means to) or privately invest in a dedicated investment manager with the same strategy? I was under the impression that bing a publicly traded stock would impose a lot of additional compliance and managerial costs that would undoubtably be felt by shareholders.
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Investing in the hedge fund management company (the general partner) does not equal being a limited partner investor in the actual hedge fund. The former investors benefit from fee revenue, the latter receives performance minus fees. Completely different investments: investing in a credit strategy and investing in the manager of that strategy are not substitutes.
Oops thanks for clarifying. But since most active managers fail to beat the market and more and more money is moved into passive, wouldn't investing in a HF company's stock in hopes of fee revenues be a poor investment?
The TSR (total shareholder returns) of public equity investment managers, mutual funds or hedge funds, kind of already confirmed your point.
That these institutions have public equity is less about creating value for shareholders and more creating a liquidity event(s) for existing partners.
Then why don't other HFs go public then?
There are other ways to raise capital / unlock liquidity. You're asking why any company would choose to go public, this is not unique to asset managers.
But why is going public rare for hedge funds compared to companies in many other industries, like SaaS?
Many hedge funds payout all their earnings to partners year in and year out. Additionally, the “business” is really just 1) client book and 2) ideas (if purely discretionary then just whatever the PMs have in their heads). Some will also say infrastructure, etc (the tech, tooling, and obviously things like talent). So from a partners perspective why go public? You usually can’t get great valuations because of the above (who wants to give high valuations for something that requires the ideas to work and there is nothing holding PMs from just leaving - it isn’t a high growth business and assets might not be sticky) and you are just giving up control. You are already cashing out every year if the ideas work, so it usually won’t make sense. There is some stability to it (build up a balance sheet) but the incentives aren’t high to do it vs a traditional F500 company (or tech startup that is losing money but the bet is on growth).
Companies that generate cash flow can raise capital through multiple forms. Companies that do not generate cash flow, like a lot of SaaS businesses, generally need to raise capital by issuing equity because they cannot support debt or other forms of cash flow-based financings. You don't IPO just to "be public" you do it for a reason, and that reason is unlocking capital.
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