19 March 2017
The acquisition of Fortress, the US asset manager, for
SoftBank, which was founded by
The chief executive of a rival asset manager, who did not wish to be named, says the price paid for Fortress has raised eyebrows across the industry. "Fund industry executives and investment bankers experienced in takeovers are shaking their heads in disbelief. The price is just crazy," he says.
But the deal is a boost for executives at listed alternative investment managers and private equity companies, their closest competitors, who have long complained that shareholders fail to recognise the growth potential of their businesses.
Valuations for these companies remain hotly debated due to the complexity of their business models and the uncertainty surrounding their future earnings, which can be volatile.
Investors tend to attach lower valuations to alternative fund companies specialising in niche areas such as private debt or hedge funds than they do to traditional active managers, such as
But he believes alternative fund companies are more protected from the inexorable rise of passively managed funds than their counterparts in the traditional investment universe.
He adds that alternative managers in the US "look particularly well placed" to prosper following the election of
"Favourable tax reforms will raise the level of assets available for investment, which in combination with looser business regulations should translate into higher returns for alternative asset managers," he says.
But other investors believe alternative investment companies are understandably cheap.
He says: "Northill would not consider taking a stake in a private equity manager. They tend to be incredibly complex structures that are not always transparent to their investors.
"The shares of listed private equity groups trade on low valuations because of their opaque nature.
"Investors often have a healthy scepticism over whether the economics of private equity groups are distributed fairly between the managers and the shareholders."
Petershill, part of Goldman Sachs Asset Management, is in the process of raising up to
"Investors in these vehicles may suffer losses when senior partners who have driven the growth of the private equity firms wish to retire or leave, making subsequent fundraisings challenging, especially if recent performance has been poor."
His caution is shared by
He is also concerned by the lack of clarity over an eventual exit for investors who have bought a stake in a buyout firm, noting that private equity companies may not want to disclose sensitive information to future buyers. This could then derail a sale process.
He says: "If a private equity manager is willing to sell a stake, the question investors must ask is: 'Am I buying a lemon?'"
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