How to think about Post-IPO PE Presence in Public Equity?
Does anyone have a helpful framework for how to think about a PE fund's stake post-IPO in a public company? I realize this can be very situation specific with a lot of moving parts, but I'd love to hear how others think about this or anecdotes they've experienced.
Based on what I've read, most PE funds don't exit right at the IPO, instead opting to hold [at least most of] their stake in the newly public company. Average holding time from there is apparently around 3 years post-IPO, albeit with a wide range of outcomes, some holding up to 10-years. This might be nice for the GP as they can continue to collect management fees, but surely this time horizon can be affected by other factors, such as fund terms / length of harvest period, subsequent public market performance, etc. A fund might be averse to selling out below IPO price, and selling at a depressed price could portend a downturn in the business foreseen by the quasi-insiders (and perhaps decrease the likelihood that the business is acquired by a separate party). At the same time, the fund exiting in blocks / flooding the market with supply could spell opportunity for the public investor. The confluence of these factors could have interesting implications for the public market investor.
ChatGPT my boy
Fund length is not as important in deciding exit or not, as the fund that needs to exit will sell the company to a following fund and the holding will continue under the same company.
Moreover, think it from another standpoint, PE is not only a cutting-costs-kinda investment, instead, seniors also have their investment thesis and professional views around where the economy or market is heading, so the risk of market performance is implied in their investment thesis.
So if a company is going extremely well and you think there is still room for growth (= more fees), the economy is going upwards, and you expect the company to perform well overall, why would you exit as fast? If a PE holds into an investment then that's a good sign; fear when they exit straight after the 6 months lock-up period.
Fast exits is typical of funds that don't do so well as they prefer to get the cash now than to expose themselves to further risk (market performance, as you point out) (or simply because they think that the company can't get any better than that/future too uncertain to wait). Funds that perform well don't necessarily have liquidity as first thing in mind, instead, they have a long-term approach as their ability to operate properly their portfolio is acknowledged by their LPs so there is less pressure/interference with long-term holdings.
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