The WSJ takes an benign view of publicly traded buyout funds with a focus on foreign publicly traded management companies, primarily 3i (UK) and Onex (Canada). Still, the Blackstone structure provides weaker protection to public shareholders and is probably coming at close to a cyclical peak...we will see...
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One of the largest of the publicly traded private-equity firms, London-based 3i Group PLC, says it is buying companies at a record clip. "We've been growing our investment levels and getting into new business lines," Chief Executive Philip Yea said in an interview. Being publicly traded enables 3i to use its own balance sheet to start new businesses quickly or buy minority stakes in other companies, he added.
Beginning as a government agency to finance start-ups in the aftermath of World War II, 3i dates back about 60 years and has had shares publicly traded since 1994. The company's shares are up 67% over the past two years on the London Stock Exchange. On Thursday, 3i said it will return an additional Â£800 million ($1.57 billion) to shareholders after windfall gains from selling companies it had taken over and restructured. On Friday, its shares closed at Â£11.36, down four pence.
"Their core business areas across buyouts, growth capital and venture capital continue to perform strongly," said Simon Haines, a fund manager at Threadneedle Investments, one of the largest 3i shareholders, with more than 3% of the company. The recent payment to shareholders "underlines their success."
Going public has several advantages for firms in an industry dominated by private partnerships. The ones that have made the leap say it can make them appear more reputable and enduring than rivals that operate funds that typically exist for no more than 10 years. It also can help them raise money from the stock market for a variety of uses, cash that is better suited to more long-term investments because it doesn't need to be paid back like money raised from institutional investors and the wealthy. (Blackstone and Fortress Investment Group LLC, a hedge fund and private-equity firm that recently went public, are selling stock in their management companies, not in the funds they use to buy companies, so public stockholders won't own a direct stake in the firms' buyouts.)
Canada's Onex Corp. was founded in 1984 with money from rich individuals and institutions. Three years later, Gerald Schwartz, the former Wall Street banker and founder of Onex, realized a permanent pile of capital was needed to fund his long-term acquisition ambitions as private-equity shops specializing in leveraged buyouts were still a novelty to Canadian investors. Going public has produced "a very steady and regularly increasing amount of capital for us to invest," said Mr. Schwartz, Onex's chief executive.
Since raising 240 million Canadian dollars (US$207.9 million) in its 1987 initial public offering on the Toronto Stock Exchange, Onex now has C$4 billion in capital, which it invests along with private money it raises from outside investors, known as limited partners. In total, it has C$7.5 billion in assets under management and has made some high-profile acquisitions. The firm is part of a consortium that recently launched a buyout offer for Australia's Quantas Airways.
Onex shares have climbed an average of 18% each year since it went public. Friday, Onex shares closed down 1.4%, or 44 Canadian cents, to C$32.06, up about 13% this year.