Should Private Equity Firms Sell Their Equity?

Interesting.  Apax Partners, the massive UK-based private equity group, has sold a 7.7% stake in its management company to a pair of sovereign wealth funds: Singapore's GIC and the Australia Future Fund.

I usually hold my nose when GPs sell off equity in their firm to outsiders.  They always rationalise the move by mumbling about succession planning or locking in anchor LPs, but everyone knows it's bullshit.   These guys are selling out the next generation of employees so they can take advantage of dumb money during a bull market (think Blackstone's IPO).  It's greed at its purest and ugliest, nothing more or less.

But I do think that Apax has a defendable explanation.  All the proceeds of the sale are being kept within the firm (or a related investment vehicle) and will be used to take limited partnership positions in future Apax funds.  That's smart. 

LPs expect private equity execs to have personal skin in the game, typically 1%-2% of the fund's value.  In fact, Apax employees personally committed about £200 million to the European buyout fund they raised last year [note to self:  send CV to Apax].  

In addition to reducing the financial pressure on individual Apax staff, the new pool of capital will also be a powerful selling point during fundraising.  To quote Chief Executive Martin Halusa, "We would like . . . to say we are the biggest investor in our own fund, which would help the next time we go fundraising."

Comments

[Stevo]

Note to self: send CV to Apax

LOL!!!