NEW YORK (Reuters) - While private equity firms were spurred early this year to explore plans for public offerings, major buyout shops don't appear to be rushing to the IPO market.
Top managers from Thomas H. Lee Partners THL.UL and Bain Capital, who attended this week's Reuters Hedge Funds and Private Equity Summit, said while the idea of a public vehicle was interesting, they are not pursuing any plans right now.
"We're not actively looking at it, but we're always open minded," said Paul Edgerley, a managing director at Bain, a major private equity firm currently investing $10 billion globally.
"From my standpoint, being public is a complicated thing. It's got its positives and its negatives. You're going to have public reporting which I think is going to create disincentives sometimes," Edgerley said.
Private equity firms buy controlling stakes in companies, restructure the businesses, and typically sell them two to four years later, keeping 20 percent of the profits, or "carry", and giving the rest back to their investors.
Asked if public equity would help attract and retain talent at private buyout firms, Edgerley said "not really."
"We can get great talent," he said. "All people in private equity have good business models. The nature of how carry works really does give people something similar to equity in any firm. I don't think you have to go public to do that."
Buyout firms raise money by going out to pension funds and endowments and asking for allocations. But they have long aimed to avoid that lengthy and costly process, and in the last few years a few funds have found ways to raise public money.
IPO interest among investment funds grew when Fortress Investment Group (FIG.N: Quote, Profile, Research, Stock Buzz) raised more than $600 million in February, followed by Blackstone Group BG.UL filing for a $4 billion public offering last month.
Sources in the industry say the Fortress IPO spurred bankers into action, pitching other investment funds, including major private equity firms, to consider going public.
Lehman Brothers LEH.N has even created a group dedicated solely to advising private equity firms and hedge funds on their strategic direction -- a sign of just how seriously these funds are considering their future.
But just how appealing the IPO route is for many of them remains to be seen.
"What Blackstone is doing is more appropriate for a broadly diversified firm than for a highly focused one," said Scott Sperling, co-president of Thomas H. Lee, indicating at the summit that his firm was not pursuing a public offering.
Where Blackstone has at least a half dozen funds covering buyout, real estate, debt, and distressed investing, Thomas H. Lee runs a buyout fund that focuses on North America-based businesses. It is currently raising a $9 billion fund.
One reason firms may not be hurrying to market with IPOs is they are waiting to see how Blackstone does first. Blackstone is taking part of its general partnership public, a different route than other buyout firms that have raised separate, publicly traded funds. Continued...
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