As TPG Hits The Stock Market, Should You Be Worried When The Smart Money Cashes In?

As TPG Hits The Stock Market, Should You Be Worried When The Smart Money Cashes In?
Andrew Rummer

about 2 years ago1 min

Mentioned in story

As TPG joins the stock market on Thursday in the first initial public offering (IPO) of a major US private equity (PE) firm in nearly a decade, history suggests investors shouldn’t be too worried about what it portends for the wider market. 

The entire business model of PE firms is to purchase a company, spruce it up, and then either sell it on or float it on the stock market – ideally for a profit. So when these supposed experts at timing IPOs decide to cash in and join the public markets themselves, it understandably raises questions around whether they think a sell-off is around the corner. 

But as the chart above shows – with the S&P 500 in blue and the green circles indicating major private equity IPOs – PE giants aren’t as skilled as you might expect at picking market tops.

It’s true that Blackstone’s June 2007 debut heralded a major market tumble as the global financial crisis took hold and Apollo Global Management’s March 2011 listing came a few months before a near-20% slide in US stocks. But IPOs from KKR in July 2010 and Carlyle Group in May 2012 came closer to market bottoms than tops – and, over the longer term, Apollo, KKR, and Carlyle would all have been better off waiting a few years. 

In conclusion, a private equity giant deciding they like the look of hefty public market valuations shouldn’t necessarily send investors fleeing. But bulls will certainly be hoping TPG’s debut is more KKR than Blackstone.

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