Transforming Public Market Engagement through Emulation of Private Equity Strategies

Transformation Proposal: Implementing a Private Equity Strategy in Public Securities Trading

Senior partner, Alex Savin, hails from Blackmoor Investment Partners.

Privatization methods, applied to open markets, unleash potential that yields better returns than conventional public market investing.

There's significant proof that private equity (PE) expertise and techniques generate more value than passive, long-term investing strategies employed by many public market investors.

Some institutional investors, such as the one I've recently joined, are employing PE methodologies to aid their portfolio companies in unlocking strategic, financial, and operational gains to produce superior results.

Data on Private Equity vs. Public Markets

Based on data from the Cambridge Associates Private Equity Index and Bloomberg, PE funds have outperformed typical returns achieved by blue-chip indices over the past decade, delivering an average annualized total return of +15%, compared to the 9% attained through public market equity instruments.

While public market investments have benefits like liquidity and transparency, PE's organized, hands-on approach plays a crucial role in driving returns. In my opinion, you can make the most of both worlds.

The Private Equity Playbook

PE investors, who are high-confidence backers, typically acquire substantial stakes and offer proactive strategic guidance in their investee companies to maximize returns. Investing in high-potential public companies and employing active value-creation approaches can generate substantial positive impact, resulting in significant outperformance against traditional benchmarks.

Traditional public market funds have faced increased competition in recent times. This often led to lower-conviction investment strategies, broader exposure, and a more detached approach, which negatively affects returns. However, by adopting PE techniques to craft a higher-conviction, active engagement approach, firms have seen their returns improve.

Key Pillars to Build a Successful PE-Oriented Playbook:

Traveler Selection: PE investing is meticulous. Strictly researching targets based on global trends and industry-specific details helps ensure a sharp focus on those companies best positioned to capitalize on prevailing themes. Public market investors can gain an edge by emulating this approach and concentrating on specific investment themes.
Thorough Due Diligence: PE investors exhaustively analyze targets, considering financials, market positioning, operational details, and team dynamics. Public market investors can enhance their assessments by consulting industry experts, conducting deep-dive market analyses, interviewing management, and engaging with other investors.
Developing a Value Creation Plan: A PE investment's core tenet is supporting management teams in formulating comprehensive strategies to augment value. This could entail refining corporate strategy, reviewing business models, restructuring balance sheets, improving operations, and advising on merger and acquisition opportunities. Active public investors can adopt the same techniques to maximize the potential of their investments.
Long-Term Collaboration and Strategic Exits: In my experience, PE investments generally last between four and five years. This permitted long-term engagement with companies to spur change and seize upside opportunities. Such a proactive, long-term perspective fosters positive collaboration with management teams and other investors to effect change over time. PE firms often initiate management shifts, reconfigure board compositions, and fine-tune compensation structures to facilitate the execution of their strategic plans. Similarly, active public investors work closely with their investee companies' management teams and boards to drive change.

Exit Strategy:

A typical investment cycle, like with PE firms, concludes when desired financial and operational objectives have been accomplished and significant value has been added.

Desirable Results

Research from McKinsey shows that active, engaged investors tend to outperform their competitors. The PE playbook aligns investor and investee interests through rigorous processes designed to drive long-term value creation, rather than prioritize short-term gains.

The application of PE-oriented strategies by public market investors can prove a formidable tool. Such strategies can foster positive change and enhance returns for all stakeholders.

The information provided is not financial, investment, or tax advice. Consult a licensed professional to address your specific requirements.

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Alexander Savin, as a senior partner at Blackmoor Investment Partners, might leverage PE-oriented strategies to help his portfolio companies unlock strategic, financial, and operational gains, aiming for superior results.

Furthermore, by focusing on specific investment themes, conducting thorough due diligence, developing a value creation plan, and collaborating with management teams for long-term engagement, investors like Alexander Savin can effectively optimize their investments and reap the benefits of a PE-focused approach.