The decision by KKR to launch a publicly traded vehicle in Europe to invest in their private equity/buyout funds has prompted some to wonder whether this a good idea. We commented earlier that this development is not at all surprising. Michael Flaherty at Reuters.com reports that despite the drawbacks more private equity firms will launch public vehicles.
The trend is more toward taking part of the firm public, not the firm itself, though some believe a wave of large, public buyout companies is ahead.
The globalization and institutionalization of private equity, retirement among top fund leaders, and a current slowdown in the buyout market are fueling the industry's heightened focus on public vehicles to raise cash.
One advantage private equity firms have is the flexibility to structure transactions in the most favorable manner. However that will not be to the benefit of public shareholders. breakingviews posits that public investors would take the initial hit from any turndown in private equity.
If the markets crash again, public investors would feel the pain first. KKR's public equity vehicle woudl quickly trade below the net asset value of its investments. Traditional private-equity investors are better suited to ride out the storm. But public shareholders can do no more than hope they time their entry into the private-equity cycle correctly. Juping on at the top would not be smart.
Controlled Greed is following the developments in this arena, but cautions investors to be wary. These developments may be indicative of a trend already spent. They warn investors should only invest in these vehicles when they are "undervalued."