By Ratish Singh, Luc Roberts (University of Warwick)
Photo: Maxim Hopman (Unsplash)
Petershill Partners, a Goldman Sachs-managed investment vehicle, is an asset manager that owns minority stakes in 19 alternative asset management companies with a combined AUM of close to $200B. The profits from Petershill are distributed to Institutional Investors whereas Goldman is owed an operator fee (7.5% of income) for managing the assets. Recently, the firm has pivoted its strategy to focus on the effects of the pandemic by investing in balance sheet repair, ESG and healthcare.
The group raised £547M by issuing new ordinary shares and existing investors exited shares worth £465M. The IPO was priced at 350p per share and the market cap close to £4B makes it the biggest listed alternatives business in London. Some details of the firm’s investments are listed below, with some notable names including Industry Ventures, Accel-KKR and Caxton Associates.
Sector: Financial Services (Asset Management)
Exchange floated: London Stock Exchange
Amount raised: £1B
Over-allotment option: 20%
Price per share: 350p
Shares offered: 156.3M ordinary and 176.3M shareholders
Joint Global Coordinators: Goldman Sachs, Bank of America and JP Morgan
Joint Bookrunners: BNP Paribas and UBS
Aggregate Distributable Earnings (year ending June 21’): $310M
In recent years, many investors have turned to alternative assets due to low-interest rates from banks. According to the data provider Preqin, the industry is forecasted to grow by a CAGR of 10% over 2020-25. The decision to float Petershill’s portfolio aimed to take advantage of this boom in private investments as investors hunt for stronger financial returns and hedges. For example - Bridgepoint, a leading middle-market growth investor, saw its shares soaring more than 40% over the few months after its LSE listing in July. In the UK alone, there were almost 800 private equity deals in the first half of 2021 worth a combined £74B.
Petershill itself, founded 14 years ago, has seen its distributable earnings climb from $109M in 2018 to $310M in the year ending June 2021. The amount raised from the IPO will be used to fund expenses and acquire further stakes in alternative asset managers. With the high degree of interest in the industry, the firm aimed to tap into the public markets and expected a positive reaction considering the track record of the operating team, prospects of investments and benefit of an independent board.
The stock (LSE:PHLL) initially fell 3.6% in the first few hours of its opening trading session to a low at 337.5p from Goldman’s pricing at 350p, before rebounding back to this opening price. Following its debut on September 28th, the stock continued to fluctuate around the pricing level in its opening week before closing at 352p on October 1st. Petershill Partners’ IPO seemed to be accurately priced as the stock did not experience a pop, which may be seen as a setback for investors who usually expect shares to climb after listing. Despite this, Goldman’s valuation at £4B market cap represents a premium to the net asset value, indicating a vote of confidence from investors in the company.
The IPO also included a stabilisation bid (or greenshoe option), appointing JP Morgan to stabilise the price of the stock with an over-allotment following significant moves higher or lower. According to the Stabilisation Notice issued by Petershill Partners, the over-allotment option accounts for a further 20% of shares issued in the IPO and is valid for 30 days after listing. In the next two weeks of trading, the market failed to support the listing price of 350p and the stock fell sharply to a low of 298p, a 15% drop from the IPO price and significantly underperforming its competitors. The decline may be partially explained by speculative investors selling the stock after Petershill failed to climb in its first day but may be indicative of a deeper problem about the company’s transparency with investors, has not disclosed the proportions of the funds it owns or the fees it receives.
Potential Risks and Downsides
The potential rise in interest rates, raising borrowing costs for alternative asset managers, poses a significant risk to Petershill. There is potential for a slide-down in its share prices due to the relatively expensive valuation above the net asset value. The company’s effort to increase investments in technology and ESG companies/funds can mitigate some of the risks. Also, the company’s involvement with non-PE firms such as private credit and hedge funds helps aid this diversification.
Another possible risk is the regulation in the private markets and more specifically in the disclosure required of listed alternative managers in LSE. The lack of transparency, aided by complex off-shore tax-saving schemes, of manager compensation/alignment for example can dissuade institutional investors in the future. Apart from positive performance, the firm should continue meeting all disclosure requirements and possibly provide some insights into its workings like Bridgepoint to secure stable prices.