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29 December 2021

Private Life

The prestige of ‘Going Public’ was once the greatest ambition of founders and boardroom executives. From Motor City to Silicon Valley, companies would build their brands and sell the public a piece of the pie through a public market equity raise, or “initial public offering” (IPO). Going public was symbolic of a company’s status in the corporate world, a badge of honour. Though, beyond the kudos, listing on the stock market meant money… a lot of money.

Growing businesses have relied on the public for centuries. Investment has provided the capital to expand into new markets and products and, rather than ask the bank for a loan, they could just sell a piece of the company for the privilege of doing so. If things go well, the price of shares will rise and the company can raise even more capital but relinquish a smaller slice of the business. But, if investors’ expectations aren’t met, shares can plummet and a company can become insolvent. It’s a risky game that’s built on the sentiment of others.
 
It’s even riskier in today’s world, where information is fast-moving and freely available. Investors have become fickle and company management are hell bent on beating analyst estimates in their next quarterly earnings numbers. It is very different from the likes of mid-20th Century mega-listings such as Ford Motor Company and Johnson & Johnson, where going public was still a relatively novel idea; giving the average person a chance to own equity in a company, rather than keeping ownership a private affair, previously a game reserved for deep pockets and the right connections.
 
As my colleague explains (See: A Walk Down Private Equity Lane), some of the most exciting companies are now choosing to remain private for longer. Not least, the market dynamics have changed enormously in the last few decades. Trades can be executed in seconds on a smartphone, while views, tips and company information can be found with the same ease. While these are all innovations that foster a more inclusive financial environment, it has created a more fickle one - one that can turn a company’s fortunes on its head because of a viral image.
 
Fast-growing businesses are understandably cautious of going public these days. There is a raft of innovative technologies out there that are looking for more patient investors with long-term capital. They want investors who really understand their creator’s vision. But that doesn’t mean us normal folk don’t get a chance to buy in. The Schiehallion Fund is one such investor with a reputation for aligning themselves with the foresight of the companies they invest in (See: The Schiehallion Fund: Are We At The Foot Of The Mountain?). All the investments of the fund are co-invested with several like-minded participants, meaning the fund doesn’t have the pitfalls of more opaque private equity solutions in the market.
 
A growing private market doesn’t mean less opportunity, but investors must take a different mindset before diving into this arena. It can often be less transparent and full of new lexis to get your head around (See: How Can I Invest In Private Equity?), but, most importantly, it requires patient capital. This won’t yield results overnight.
This article was taken from the Autumn 2021 issue of 1875. To subscribe to our investment publications, please visit www.redmayne.co.uk/publications.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.
 
Private Life
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