Another cynical take on public firms is that they raise not just bigger funds, but more funds—for largely the same reason. One interesting tidbit from our recent analyst note, however, is that today's now-public firms were actually diversifying decades before their public debuts. The "more strategies" strategy has been in their DNA for awhile.
Starting in the late 1990s, the US-based firms that would eventually go public had, on average, 2.5 unique fund strategies to their name, compared to only 1.5 for the private cohort. By 2001-2005, when the PE market really got rolling, the firms that eventually went public had an average of 4.3 strategies, while the four private firms stayed put at 1.5. At the fever pitch of 2006-2008, the difference swelled 6.3 to 2.3, while today's gap is even starker at 8.0 to 2.3.
Firms like Blackstone and KKR are getting closer to becoming asset managers rather than mere buyout shops. None of which is to say that fund diversification is the gold standard, and other firms are somehow less worthwhile because they only do bread-and-butter buyouts. In fact, it's just the opposite sometimes: Many LPs value focused strategies, as long as they can get into one of them.
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This column originally appeared in The Lead Left.
Read more about public vs. private PE firm flagship funds in our recent analyst note