Growth-minded firms steering toward IPOs

European private markets managers are opting for initial public offerings as a means of obtaining additional capital to grow their business at a time when public markets can promise attractive valuation multiples.

Several privately run alternatives firms tapped public markets in Europe for cash in the third quarter to fund expansion into new strategies as well as to attract new talent. And as the hunt for illiquidity premiums by investors is set to continue, sources said executives are realizing they need to invest in distribution and technology to keep up with the demand from institutional, wealth and retail clients.

Firms that recently listed some of their shares:

• Goldman Sachs Group Inc.'s business Petershill Partners PLC, which takes stakes in alternatives managers, launched its IPO on Sept. 28 on the London Stock Exchange, raising £1.2 billion ($1.6 billion).
• Infrastructure investment firm Antin Infrastructure Partners offered its shares at Euronext Paris on Sept. 24, raising €550 million ($645 million).
• Private equity firm Bridgepoint Group PLC listed July 21 on the London Stock Exchange, raising £907 million.

And the trend is not unique to Europe as U.S. private markets firm P10 Inc. also filed for an IPO on Sept. 27 at the New York Stock Exchange and is seeking $100 million.

Sources said midsize private managers with less than $50 billion in assets under management and looking to expand could struggle to find buyers among traditional money managers with a focus on listed securities so as to "not get stuck in the middle" and compete with firms such as Blackstone Inc., The Carlyle Group and KKR & Co. Inc.

"It's a combination of the need for the capital and the fact that public markets are attractive that's driving a lot of consideration for an IPO," said Benjamin F. Phillips, principal and investment management chief strategist at Casey Quirk, a practice of Deloitte Consulting LLP in Stamford, Conn., in a telephone interview.

Executives of firms that launched IPOs in the past few months said they were looking to expand their offering to include new strategies and considered the IPO the best way to pay for it.

"We believe an IPO would strengthen our balance sheet to accelerate our growth," said Mark Crosbie and Alain Rauscher, co-founders and managing partners of Antin, in a statement on the firm's website when the IPO was announced.

Antin, which had €19.9 billion in assets under management as of June 30 and floated 15% of its shares, is planning to use the IPO proceeds to fund expansion into new strategies, fund future growth plans and to retain talent, said Sebastien Lecaudey, Paris-based senior partner-investor relations and a member of the investment committee at the firm, in an emailed comment. Antin declined to specify the types of strategies it is considering.

Mr. Lecaudey added that Antin considered different options to ensure "long-term continuity and success, while maintaining its independence and unique culture."

"Over the years, Antin received a number of proposals from other investment firms and diversified asset managers to acquire majority or minority stakes in the company, which were turned down for various reasons," he said. "After careful consideration, we believe the unique attributes of an IPO represented a measured solution that best positions Antin for long-term continuity and success."

For Bridgepoint, which has €28 billion in assets under management and listed 27% of its shares, the cash from its IPO will also pave way to launch and seed new strategies.

The IPO "has allowed us to invest further in our investment platform and potentially fund acquisitions to add a third strategy alongside private equity and private credit," said James Murray, who is senior partner at the firm and is based in London. While the firm didn't specify its plans for the additional strategy, it is expected to be related to real estate or infrastructure.

Bridgepoint has €9.3 billion in credit strategies such as direct lending and syndicated debt. The rest of its AUM is invested in middle-market, lower midcap and early stage growth investment strategies.

Petershill Partners, which sold 29% of its shares in its IPO, said in IPO announcements that its directors intend to use the net proceeds to fund ongoing expenses and acquire further stakes in alternatives managers. Petershill Partners acquires direct minority equity investments in alternatives managers to accelerate their development. Currently, it owns minority investments in 19 firms with $187 billion in combined assets under management.

The European firms are following in the footsteps of Swedish private markets firm EQT AB, which conducted an IPO in 2019 on Nasdaq Stockholm. At the time, the firm cited balance sheet expansion and building out its private market capability as reasons for floating its stock.

The Swedish firm since increased its assets under management to €71.3 billion from €40 billion. In January, it acquired real estate firm Exeter Property Group, boosting its real assets AUM of €19.3 billion with the addition of Exeter's $10 billion U.S. and European real estate business.

Public markets are currently giving managers a multiple that makes IPOs attractive, Casey Quirk's Mr. Phillips said. "That's because (private managers) are growing in terms of bringing in new money and their fees are more insulated partly because they are higher and partly because they are locked up," he said.

Money management consultants also agreed that managers might be looking at IPOs because organic growth might be more challenging for midsize private markets managers unless they invest in themselves.

Mr. Phillips said private markets managers are looking for more operating capital because they are realizing they need to build out infrastructure to cater to wealth and retail investors. "But the distribution to these investors is expensive whether they buy a smaller firm or develop the capability," he said. If firms are adding new capabilities, for example getting into private credit or private infrastructure, that requires systems to track investments, he said.

Jonathan Doolan, managing partner at consultant Indefi in Paris, agreed with Mr. Phillips that the cost of client acquisition, especially retail and defined contribution clients, is increasing so firms are not only wanting to expand strategies they have but also acquire funding to access distribution to different types of investors.

Mr. Doolan added that midsize managers need scale to be able to grow effectively.

"Firms with between $5 billion and $10 billion in assets under management can keep focusing on specific industries, they can keep on fundraising and keep on deploying capital, but those that had an ambition to get to the size of Blackstone and KKR ... it's really difficult to do that organically … particularly if you have a partnership. You need infrastructure, you need expertise to add value beyond the acquisition of that asset," he said. For example, a U.K. real assets firm can't quickly add a few investment staffers to manage assets in all of Europe. "It requires more resources," he said.

At the same time, consultants think midsize managers might struggle to be acquired by a larger money manager focused on listed securities.

Mr. Doolan said: "It's been super expensive to buy another manager. If you look at in the last three years, multiples will be around 14, 15 times," he said.

While large traditional managers are pushing into private space, Mr. Doolan said the valuations on buying a private assets manager are "rich."

"Buying (an) already mature business is already expensive for large traditional managers if you consider fee pressure," he said.

Another risk that private markets managers have to consider is liquidity.

Casey Quirk's Mr. Phillips said some clients of firms conducting IPOs will see the floating of its stock as positive. "If you remain in a partnership, and suddenly liquidity becomes an issue and partners that are retiring want to cash out, that creates a tension," he noted. Investors might view IPOs as potentially "stabilizing," he said.