Privates are what listed assets are not: niche, illiquid and fee-rich

收回控制权 Taking back control-书迷号

THE NOTION of the “first 100 days” as critical for a new administration goes back at least as far as Franklin Roosevelt. He first used the term in a radio address in 1933, shortly after becoming America’s 32nd president. Private equity has its own version. The 100-day plan sets priorities for a bought-out business. The new owner looks for “quick wins”—standard remedies for the most glaring operating problems. Fixes may include updating computing systems, slimming the array of products or closing loss-making divisions. The plan also prescribes the easiest ways to raise cash to pay off hefty debts used to acquire the firm.

The promise of private asset management (buy-out funds, private debt, venture capital and so on) is that endurance will be rewarded. Investors in private equity must lock up their money for years; they cannot easily sell out. Big stakes in private assets trade quite rarely. But there is an upside. Private managers are able to eke out better returns than would be possible if their assets were traded each day. Investors in the public markets like predictable short-term profits and strategic certainty. They are too skittish to invest in a corporate turnaround. If the boss of a listed company unveiled a 100-day plan, it might spark a run on the shares.

That is the sales pitch—and plenty of investors buy it. Desperate for returns, pension funds have piled into private markets in recent years. A survey by Morgan Stanley finds that 64% of institutional investors plan to increase their allocation to private equity this year and only 5% to reduce it—a net balance of 59%. The balance for venture capital was 39%; for private debt, 33%. For listed assets, the balance was negative. Private markets are at the niche end of asset management. Only around $4trn or so is invested in private equity, about half of total assets under BlackRock’s management alone. But private assets are where the fees are. The question is whether performance and fees can be sustained.

Of several influences behind the growing interest in private assets, three stand out. The first is the example of successful pioneers. In the 1980s and 1990s the endowment funds of a handful of big American universities shifted much of their invested funds into private assets. The largest retirement schemes in Canada, led by the Ontario Teachers’ Pension Plan (OTPP), have a similar approach: run the plan like a business, pay for good in-house fund managers and invest in lots of private assets. This model has been copied by sovereign-wealth funds in other parts of the world. The intellectual leader of such investing was David Swensen, at Yale. He argued that, since life-insurance funds, endowments and sovereign-wealth funds have obligations stretching far into the future, they can afford to take a long-term view. It is hard to be rewarded for diligence in listed stocks. Private markets, in contrast, are inefficient. Data are hard to come by, assets are complex and trickier to appraise and waiting for opportunities to pay off requires patience. But the right homework brings rewards.
有几种影响力推动了对私募资产兴趣的增长,其中三种十分醒目。首先是成功开拓者的榜样。在1980年代和1990年代,几家美国大型高校的捐赠基金将其大部分投资基金转移到了私募资产上。加拿大最大的退休计划由安大略省教师退休金计划(OTPP)领导,也采用了类似的做法:像企业一样经营该计划,为出色的内部基金经理付费,并大量投资私募资产。这种模式已经被世界其他地区的主权财富基金效仿。此类投资的学术领袖是耶鲁大学的大卫·史文森(David Swensen)。他认为,既然人寿保险基金、捐赠基金和主权财富基金的责任都延续到遥远的将来,它们可以负担得起用长远的眼光看问题。勤奋研究上市股票很难得到回报。相反,私募市场效率低下。数据难以获得,资产复杂且难以评估,等待高额回报的机会需要耐心。但做好功课会有回报。

A second factor is disenchantment with public markets. The age-old agency problem means that investing in projects with an uncertain payoff can be a career risk for managers of a listed business. It is easier to explain corporate strategy to a few committed backers than to lots of shareholders. Founders of technology firms who are used to getting their own way often struggle in the glare of public markets, and so prefer to stay private for as long as they can. And the costs and hassle associated with being a public company have grown. The Sarbanes-Oxley act, passed in 2002 in the wake of a slew of corporate scandals in America, introduced tougher disclosure and financial-reporting requirements for public companies. The regulatory requirements on private companies are significantly lighter. And the National Securities Markets Improvement Act of 1996 made it easier to set up pools of private investors.
第二个因素是对公共市场的幻灭。古老的代理问题意味着,投资于收益不确定的项目对上市公司的经理人来说可能是个职业风险。向少数坚定的支持者解释公司战略要比向大批股东解释来得容易。习惯了自行其是的技术公司创始人往往在公开市场的瞩目中挣扎,因此更愿意尽可能长时间地保持私有。与上市公司相关的成本和麻烦也在增加。萨班斯–奥克斯利法案(Sarbanes-Oxley Act)在美国发生一系列公司丑闻之后于2002年通过,对上市公司引入了更严格的披露和财务报告要求。对私营公司的监管要求则要轻得多。1996年的《国家证券市场改善法》使建立私募投资者池变得更加容易。

A third factor is changes to banking. The growth of private debt is, in large part, a response to the retreat of banks from lending to midsized businesses and their private-equity sponsors. Asset managers, starved of yield in the government-bond markets, are happy to fill the void. The bigger firms will even take souring loans off the books of banks looking to clean up their balance-sheets. In 2017 PIMCO, the fixed-income giant, led a buy-out of €17.7bn ($20bn) of loans from UniCredit, an Italian bank. There are likely to be more such deals in Europe. China is another potential hunting-ground for distressed debt.

One of the fastest-growing areas of private credit is direct lending to companies which cannot (because they are too small) or will not (for reasons of confidentiality) tap the public markets. A private bond might be sold to only a handful of lenders, or even to just one. Borrowers may feel that they ought to know who their creditors are because they might have to renegotiate with them. That is the case for private-equity firms. Specialist private-credit funds also often prefer to be the sole financiers of a private-equity buy-out if they like the terms and judge the bought-out firm to be a good risk. They might even be the credit division of a buy-out outfit that has lost the bidding war for the borrowing company.

Private lives

Do the results justify the hype? Private equity uses a lot of debt to make its acquisitions. One suspicion is that allocation to private equity is simply a way for pension funds to get around constraints on borrowing to enhance returns. But the buy-out industry has a decent story to tell on capital allocation. The academic literature finds that private-equity and venture-capital funds mostly add operational nous to businesses. They inspire better management habits than in entrepreneur- or family-owned firms. Buy-outs lead to modest net job losses but big increases in job creation and destruction. They promote efficiency by taking capital off “sunset” firms and putting it into more promising “sunrise” firms.

And returns? Asset managers are adept at presenting statistics in the most favourable light. Dud mutual funds are often quietly merged or folded. Managers can then claim that most of their funds beat the market—these being simply the funds that have survived the cull of underperformers. The private-equity business is notorious for selecting metrics that flatter its performance. Nonetheless, over the long haul, the best private-equity funds do really well. A landmark study led by Steven Kaplan, of the University of Chicago, found that venture-capital and buy-out funds, on average, beat the S&P 500 index over the long term. The range was wide. Funds in the top quartile did much better than average; those in the bottom quartile did a lot worse. Pension-fund managers facing big deficits have an incentive to put money into private assets in the hope that their fund will be one of the winners.
那么回报呢?资产经理善于以最有利的方式提供统计数据。糟糕的共同基金通常会悄悄合并或关门。然后,经理人可以声称其大部分资金表现都超越了市场——这无非是砍掉了那些表现不佳者后剩下的基金。私募股权业务选择使用能给业绩注水的指标这件事是出了名的。尽管如此,从长远来看,最好的私募股权基金确实做得很好。由芝加哥大学的史蒂芬·卡普兰(Steven Kaplan)领导的一个里程碑式的研究发现,平均而言风险资本和并购基金的长期表现击败了标普500指数。但业绩差异很大。前四分之一的资金表现远好于平均水平,后四分之一则差得多。面临巨额赤字的养老基金经理人有动力将资金投入私募资产,希望自己的基金成为赢家之一。

As more capital chases opportunities, the evidence points to diminishing returns. Mr Kaplan and his colleagues find that returns in the buy-out industry beat the stockmarket in nearly all years before 2006, but broadly matched the S&P 500 afterwards. Private-equity funds used to buy businesses that were cheaper than listed firms. But the competition is keener now. The bigger beasts of private equity are becoming even bigger. They have large fixed costs—all those in-house rainmakers, lawyers, analysts and consultants. With so much capital yet to draw from their pension-fund partners, the pressure to do deals that might once have been shunned has increased.

Investors need to be cautious. “Focus and selection are very important” in private markets, says Jo Taylor, CEO of the OTPP. His fund is big enough, with C$200bn ($150bn) under management, to do its own buy-outs. This gives it a big advantage in choosing good managers as well as deals. In general bigger schemes also have more muscle in fee negotiations. The surest way to irritate a private-equity boss is to say the curse words “two-and-twenty”, which was once a common fee arrangement for “alternative” asset managers, meaning a 2% annual fee and 20% of the profits. Private-equity bigwigs claim that such large fees are vanishingly rare. Big clients can usually negotiate lower charges by, for instance, taking a direct stake in an acquired business (a so-called “co-investment”). A typical management fee is “in the low- to mid-ones plus free co-investments”, says a private-equity boss. And, he insists, the 20% performance fee is paid only once returns have cleared a hurdle rate.
投资者需要谨慎。OTPP的首席执行官乔·泰勒(Jo Taylor)说,在私募市场中“专注和选择非常重要”。他的基金管理着2000亿加元(1500亿美元)的资金,规模足以进行自己的收购。这在选择优秀经理人和交易方面具有很大的优势。一般而言,更大的计划在费用谈判中也更为强势。激怒私募股权老板的最可靠方法是说“2-20”这个诅咒词,这曾经是“另类”资产经理的常见费用安排,意味着年费2%加上利润的20% 。私募股权投资界的大佬们声称,这种高额费用几乎已经消失了。大客户通常可以通过例如直接购买所收购业务的股份(所谓的“共同投资”)来协商较低的费用。一位私募股权老板说,典型的管理费是“中低端加免费的共同投资”。而且,他坚持认为,只有在回报达到某个门槛后才需要支付20%的业绩费。

Fat fees, outperforming funds, happy clients: from the perspective of asset managers that invest in public equities the buy-out business looks too good to be true. “Hope-and-pray assets,” sneers one. But hope springs eternal in all parts of the asset-management business. A lot of it now rests on China. ■