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Back to blog May 12, 2017 No Comments Author: Andy Jones

Private Equity – Investing in Public Companies

Although private equity firms normally invest in privately held companies, on occasion, some firms will invest in publicly traded companies… or will retain shares in portfolio companies that are now publicly traded.

A quick study of the database in late November showed 306 private equity firms collectively held 560 publicly traded-companies in their portfolios.

From these 560 publicly-traded companies, I created an equally-weighted basket of stocks (PE-basket) to track through time. Now that several months have passed, let’s check the performance (thus far) of this PE-basket relative to several benchmark ETFs.

Benchmark ETFs

  • IWM – tracks the performance of the Russel 2000 (smaller companies).
  • SPY – tracks the performance of the S&P 500 (large companies).
  • PSP – tracks the performance of Red Rocks Global Listed Private Equity Index with 62 publicly listed private equity and business development companies worldwide.

Of these, the best benchmark is likely IWM, since the PE-basket is largely comprised of stocks with small market capitalizations.

Performance Relative to ETFs *

Since late November, the PE-Basket has returned 4.0% (9.0% annualized). Relative to IWM, the PE-basket slightly underperforms. Meanwhile, the S&P 500 doubled the performance of the PE-basket. However, the real winner over this short period was PSP.

The 4.0% return above is the average of the individual positions in the PE-basket. Individual investments varied wildly from the average – some of these positions have more than doubled. In my next post, I’ll discuss the biggest winners (and losers), which PE firms owned these companies and the most prominent industries.

Aside: If your firm creates tradable replicating portfolios (ETF-like instruments), and would like to use this data to construct a “publicly-traded private equity holdings” fund, contact me to discuss this in more detail.


* Disclaimer: I understand that this is a fairly short investment period to compare returns and that I have not considered relative volatility between these investments.