Archive for the 'Public Equity' Category

Private Capital Markets

The Economist released this week an interesting article on the subject of financial exchanges. This gives a broad view of the sweeping changes currently taking place in the world of capital markets.

I’ve been thinking lately quite a lot on the more specific subject concerning private equity placements and ways to create liquidity. I’ve discovered in the process several places doing interesting things like Entrex or others.

What is striking is that the Market is creating many alternatives to the cumbersome machines that the public exchanges have become: selling shares under limited scrutinity, selling blocks of shares between big players,.. It should be remembered that some of these liberties have progressively and conciously been banned from the public markets to prevent small investors from being abused or having big players acting according their own set of rules. It is also interesting to see that a lot of these are genuine innovations made possible by the advent of new technologies,  better understanding of risks and the creation of clever mechanisms to handle complex contracts.

While the good old public capital markets are becoming more and more global, it should be noted that the population of capital markets at large may be becoming more and more distributed.

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Private Equiliquidity

Private Equities have received a lot of attention lately. Due to several reasons I won’t detail in this post, they have a clear advantage in term of costs compared to Public Equities. One thing they definitely miss is the liquidity their public siblings usually enjoy.

I’d like to present on this post an idea I’ve playing with for a while: securitizing pools of private equities to offer liquidity to their holders. The schema would go like this: You first create a vehicle on a pool of private companies within a specific sector, industry. The administrators of the vehicle then acts as market makers for the different companies, issueing shares of the vehicle in exchange of private shares on bids and asks terms. The vehicle itself is traded on a public market, offering the liquidity private investors are seeking after they exchanged their shares against securities of the vehicle, then sold these securities on the public market.

There are already funds that are floated on public markets. They offer to their investors the liquidity they would miss otherwise. They also offer a good mechanism to assess value of the funds’ portfiolios correcting awkward valuations that accouting principles can sometime  provide on the assets of these funds.

What would be rather novel I think is that people owning private shares would actually invest by providing their shares to the vehicle. With a continuous market making from the administrators of the vehicle, they would not only gain liquidity, but also a continuous valuation of their shares against the shares of the vehicle, and public market would provide valuation of the shares of the vehicle for the entire portfolio – something easier to do for public investors.

If you’d like to discuss the subject of private equity and liquidity, please join us within the BarCampBank where we exchange ideas on these topics and many others.

Private Equity going Public

OK, I’m not speaking of a company privately owned that would filled for an IPO; although it is interesting to note that most of the attention lately has been on the reverse moves. I’m speaking of Blackstone intention to float their shares.

The move is interesting first because Blackstone is one of the biggest Private Equity firm in the world. Second because it could usher a new state of the art in Private Equity. A lot of the major Private Equity firms will soon face the same dilema: how to you turn from a small boutique who’s grown huge into a well-run professional company. Buy-Out firms, does this remind you something? The fact is that a lot of the current biggest PE firms have been founded in the last half-century by a bunch of financial entrepreneurs. A lot of these entrepreneurs are now reaching an age where most of the people already retired. So you have to solve a transition problem.

I find interesting that Blackstone decided to turn to the Public Market to solve this cash-out / maturity conundrum. I would find even more inspiring if the Carlyles of this world decided to turn Blackstone back from Public to Private in order to boost performance after a while; and educating if a Carlyle gone public ends-up merging with our frontrunner Blackstone.

We all are insider traders

Have you ever based some of your personal decisions on how things were going at work?  When business is booming and the perspective of a fat bonus becomes more pregnant, we might be tempted to buy the new car a little earlier than we would have under regular conditions. Conversely, when things turn sour at the office, we may postpone a series of superfluous buying decisions. Some economists may call it a boom and bust cycle, but some regulators may call it insider trading: True you do not trade directly on the stocks of your company for your own benefit, but you release precious information to the market not in an orderly way as legislation of the public equity market would require.

 Again, some economists may argue that you do no arm and that you do not provide any information that is not integrated into the current public prices. Really? Maybe this is more a situation where collecting and processing this information would be too coostly – and certainly a big problem from the privacy perspective. Anyhow, it would still have to be proven that with the results in hands, you really have an hedge over the market. A potential test for assessing if the wisdom of crowds do apply to insider trading.

Just to finish, I may just give an anecdotic side to the question of the value of inside information. In the course of my career, I’ve had often access to privileged information related in roles I played in different mergers and acquisitions. With my colleagues, we often tried to predict what would be the market reaction when the world will know through a presse release this precious pieces of information that we were the only one to posess for a few hours. Results are not dazzling, predictions were incorrect every other times, not much better than flipping a coin. So we may well all be insider traders in the end, but it may not give us an edge over other things than our personal decisions.