“These are sophisticated investors, and they certainly know how to time their own exits.”
– Adam Zoia, Founder, Glocap, an executive search firm focused on the alternative investment industry, in The New York Times “Wall St. Way: Smart People Seeking Dumb Money”, Monday December 31, 2007
One of the more interesting developments this year was the interest in going public showed by recently popular, and traditionally secretive, hedge fund and private equity companies.
Because of their presumed high risk, hedge funds are only allowed by law to market to and have as clients “accredited investors” – those with a net worth greater than $1 million. This consequently results in a lower profile for hedge funds than mutual funds, which have no such net worth requirements (because they don’t charge performance fees).
Private equity funds, on the other hand, are especially ironic candidates for IPOs because their whole business model depends on the advantages of being a private company, outside of the regulatory regime for public companies (see my “The Irony Of A Blackstone IPO”).
So when hedge fund Fortress Investment Group (FIG) went public in February and leading private equity company Blackstone Group (BX) followed in June, it raised a lot of eyebrows.
The subsequent rush for the exits, as Kohlberg Kravis and Roberts and Och Ziff Management Group (OZM), another hedge fund, filed for IPOs in early July was transparent: “This Time They Ring A Bell At The Top – KKR and Och-Ziff File IPOs”, Top Gun FP, July 5, 2007.
A look at the charts of Fortress (FIG), Blackstone (BX) and Och-Ziff (OZM) confirms what was discernible at the time: a top for hedge funds and private equity.