So I know that a big difference between HFs and PE is that HFs invest in public companies whereas, whereas PE firms invest in nonpublic ones. But what happens if you are in PE and you invest in a nonpublic firm that then goes public? You would then own shares in the company or sell your stake post IPO? How exactly would this work? Thanks
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The world would explode.
The names "PE" and "HF" are irrelevant. GPs will do whatever they are comfortable with.
that is not the main difference...hedge funds think active trades...PE think long-term projects/deals.
So after the IPO the PE firm would continue to hold the shares of the company even though the company is public?
Depends on the insider holding rules of the exchange/country the stock lists on.
Sometimes the VC/PE investors sell their stock during/as the IPO.
GPs have a fair amount of flexibility here. There is no set path.
In the end you need to cash-out but you can potentially be shareholder of a listed company, even if you are a private equity firm.
It is common for shareholders to have a lock-up period after an IPO (otherwise the stock price would be volatile on the day the IPO is performed, who wants to believe in a company where shareholders sell their stake on the 1st day?)
The fund would sell shares in the IPO, have the Company do a secondary offering in which the fund would sell its shares or trickle its shares out once the lockup period is over... or a combo of any of these.
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