Pension plans, endowments and other private market limited partners allocate a significant portion of their total assets to public equity. These investments are typically made with the help of traditional asset managers.
But this year, an unexpected group of investment managers also began to enter the stock market. It’s a venture capitalist.
Amid a lack of private market deals resulting from valuation discrepancies between investors and founders, some VC firms are buying publicly traded shares directly on the public market. This is done through a secondary offer or through a private investment in public equity known as a PIPE transaction. Meanwhile, these companies are slowing their venture investments.
Most LPs already have public market investors, so why would they want their venture managers to allocate them to the same asset class at a much higher price? We charge an administration fee of 2% or more. That’s about twice as much as traditional retail investors manage capital.
Despite higher fees and potentially unnecessary additional equity market exposure, LPs with committed capital have no choice but to accept a VC’s approach to public investment.
Brijesh Jeevarathnam, Global Head of Fund Investments, said: Adams Street PartnersLPs of companies known to use this strategy. accelerator When Andreessen HorowitzHe said there are some situations where “VCs have an edge over the typical public market investor.”
If the VC was also an investor when the company was still private, they may have a deep understanding of the company’s strategy, management team, and growth prospects.
These insights will help VCs to bet that the stock price will rise within three to five years and “earn a very attractive venture-like return,” said Jeevarathnam.
Miguel Luiña is Head of Global Ventures and Growth Equities. Hamilton Lane, advises LPs and supports venture funds. He said the current environment allows investors to take advantage of strategies like arbitrage trading between low stock prices and high valuations that entrepreneurs still expect from late-stage startups.
“I think now is the time [private market investors] You can get a better value on the public market because there aren’t a lot of attractive private market deals,” he said.
Some LPs participate in VCs that invest in listed stocks, but that doesn’t mean they are ready to give fund managers latitude to pursue this strategy.
Investing in the public and private markets generally requires different skill sets, but there is some overlap.
Venture firms reportedly investing in listed stocks include: speed of light,accelerator, sequoia And Andreessen Horowitz. Both are multi-stage companies with extensive experience investing in large, late-stage technology companies, and in some ways are similar to investing in publicly traded companies.
“Do not think [public stock investing] Out of everyone’s wheelhouse, but out of some [investors’] “The wheelhouse,” he said, adding that LPs would be concerned if early-stage money entered public equities.
Private market investors also want to ensure that VC funds are under-allocated to listed stocks.
Traditional ventures can invest up to 20% of their vehicles outside startups. However, companies such as Andreessen Horowitz, Sequoia and Bessemer have registered as investment advisors, a regulatory feature that gives them the freedom to take larger positions in cryptocurrencies and other assets outside of traditional venture deals.
These RIAs are not legally restricted from purchasing publicly traded stock, but their LP agreements generally prevent them from deviating significantly from their core strategy.
Jeevarasnam said “no GP has ever invested close to 20%” of a particular fund on the public market, adding that the usual amount is closer to 5% or 10%.
Some LPs also expect venture capitalists to take a multi-year view of the stock market.
“I don’t think anyone buys a stock to hold it for three to six months. [period]hopes for a quick pop,” Jeevarasnam said.
A bigger concern with this strategy, however, is the high management fees compared to public market managers.
These concerns should not surprise VCs.
“If you can invest in something that looks really cheap, you might get better results than your peers,” Ruinha says.
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