When The Blackstone Group offered its shares on the New York Stock Exchange via an initial public offering (IPO) in 2007, a cautious trend emerged among private equity firms: to take their own firms—traditionally operated with capital raised from institutional and high-net-worth individual investors—public. Selling their shares to public investors gave greater access to capital from a broader market. And for Blackstone’s founders, selling the majority of their shares in a big IPO proved profitable—the firm successfully raised about $4 billion and top executives reportedly pocketed millions or more.
Despite an initial drop in stock and several years of faltering share prices, Blackstone continued to grow, and is now the largest private-turned-public private equity firm. Other top publicly traded PE firms include: The Carlyle Group (CG); KKR & Co. (KKR), formerly known as Kohlberg Kravis Roberts & Co.; and Apollo Global Management (APO).
Are private equity firms publicly traded?
When thinking about private equity (PE) firms, as the name suggests, many believe they are always privately held. But they actually can be traded on public stock exchanges—bought and sold like any stock—as exampled by The Blackstone Group (BX).
In recent years, the number of firms opting to go public and offer stocks on public exchanges has increased. According to financial information services provider S&G Global Market Intelligence, private equity IPOs soared over the last five years, with 18 high-profile IPOs completed in Europe since 2017 and seven in the U.S. and Canada. The uptick can be attributed to multiple factors including prior historic low interest rates.
Still, other PE firms have chosen to remain private and not be listed on public exchanges. By doing so, they can avoid some of the conditions of listing on exchanges, such as the stringent reporting requirements. These requirements, which are part of the Securities Exchange Act of 1934, include company filings of annual, quarterly, and periodic reports with the SEC, as well as shareholder reporting requirements.
PE firms have different ways of structuring a public equity offering. The firm can list itself publicly or create an investment trust, in which a publicly listed company sells shares to investors, pooling the money to invest on their behalf. This is a less popular structure in the U.S., and an IPO is the best-known way for PE firms to offer shares.
When a private equity firm offers its own shares on an exchange, the publicly traded private equity firm may also be known as publicly listed private equity or publicly quoted private equity.
PE firms may offer public shares in various ways, including through:
- Business development companies. These offerings, which are like private equity stocks, don’t just raise capital through limited partners, but also through long-term debt, convertible debt, and equity. Many are publicly traded stocks and open to average investors.
- Private Equity ETFs. Exchange-traded funds (ETFs), like mutual funds, are bundles of investments that track a sector. (Unlike mutual funds, though, individuals can buy them directly on a stock exchange). Private equity ETFs have holdings with high percentages of assets in private equity-focused businesses, and therefore, can give investors access to publicly listed private equity companies.
- Special-purpose acquisition companies (SPACs). Increasingly, private companies have opted to list on stock exchanges via an acquisition through a SPAC, a corporation listed on an exchange for the purpose of acquiring a private company. The private equity firm can go public this way without going through the IPO process.
What happens when a private equity firm becomes publicly traded?
Publicly traded private equity firms are listed on public stock exchanges. In the U.S., these stocks are traded on the New York Stock Exchange or Nasdaq. A firm’s listing on a public exchange can open the door to a larger, public pool of investors. A listed company can remain available for investment indefinitely. This gives the fund access to so-called “evergreen capital,” which is the ability to reinvest capital on a continued, long-term basis without a termination date. In turn, the raised capital can be used for new acquisitions and other investments.
Going public can be attractive to PE firms because listing gives greater liquidity, or access to cash. For instance, private equity firm TPG raised $1 billion in its IPO at the beginning of 2022.
Private equity fund partners may also use an IPO as an exit strategy, allowing them to liquidate their equity once the company is public. For instance, Reuters reported that about 40% of the capital raised in TPG’s IPO would be distributed to shareholders looking to exit.
For PE firms considering the public route, the decision may come down to choosing between potentially increased liquidity of an IPO and the agility of private financing. Firms that go public are subject to the SEC’s rigorous reporting rules for listing on financial exchanges. By comparison, firms electing to stay private may retain greater decision-making control—and are more likely buffered from the risk of being publicly traded.
What are the biggest publicly traded private equity firms?
These firms are the largest publicly traded private equity firms in the U.S., by assets under management (AUM), as reported by each firm as of December 31, 2021:
- The Blackstone Group Inc. (BX), $880.9 billion. The Blackstone Group is the largest of the publicly traded private equity firms, with hundreds of billions of dollars not only in private equity, but in real estate, hedge funds, and other investments. Blackstone Group launched its IPO in 2007.
- Apollo Global Management (APO), $498 billion. Apollo invests in private equity, credit, and real assets (including real estate and infrastructure). The company invests on behalf of pension funds, endowments, and institutional and individual investors, among others. Among its holdings have been CareerBuilder, Cox Media Group, Redbox, University of Phoenix, and Yahoo.
- KKR & Co. Inc. (KKR), $470.1 billion. KKR, formerly Kohlberg Kravis Roberts & Co., became famous for the 1988 leveraged buyout of RJR Nabisco—then the largest buyout in history—and later TXU, the largest on record. The firm was founded in 1976 and went public in 2010. The firm manages a wide variety of investments, including Spotify Technology.
- The Carlyle Group Inc. (CG), $301 billion. Founded in 1987, shares of The Carlyle Group listed on Nasdaq in 2012. The firm specializes in private equity, real assets, and private credit. Its investments have included Getty Images, Hertz, Booz Allen Hamilton, and Dunkin’ Brands.
How do private equity firms create value for their investors when they’re not public?
Private equity firms make a profit by collecting both management and performance fees, and also by exiting the investment after they’ve increased the company’s valuation and distributed profits among partners.
- Management fees. Private equity funds are usually structured as limited partnerships, in which the manager of the fund is called the general partner (GP) and the investors are limited partners (LPs). The firm usually pays its GPs approximately 2% of committed capital, or what the investor committed to the private fund. The fee is paid regardless of the fund’s performance.
- Performance fees. PE firms typically charge a performance fee of up to 20% of an investment’s profits beyond a certain threshold, or hurdle rate. The typical hurdle rate is 8%.
- Exiting the investment. Most PE firms exit their investment by taking a company public via an IPO or by selling it outright. The goal for PE firms is to exit at a profit, typically three to seven years after the original investment. The profits are distributed among partners based on what Is referred to as a “distribution waterfall.” Typically, the split between partner groups is 80% (after returning initial capital) to LPs and 20% to GPs. The waterfall portion of this equation occurs among the GPs, where the profits are weighted in favor of senior partners.
The bottom line
Private equity companies have increasingly opted to offer their own shares to the public via IPOs on financial exchanges like the New York Stock Exchange and Nasdaq. By selling shares, PE firms can not only access the funds of their limited partners but also those of individual investors. They may also turn to other investment structures like SPACs and business development companies to offer public shares.
The tradeoff for these publicly traded private equity firms is greater responsibility for reporting both to the SEC and shareholders, and therefore, less agility when making decisions—something private companies less likely have to adhere to within their business.