Private equity funds safer bet than IPOs: Partners Group’s Urs Wietlisbach

Investors should seek out private equity funds, rather than floats like Rivian, according to the co-founder of one of Europe’s largest PE fund managers.

Investors should seek out private equity funds, rather than floats such as start-up electric-vehicle company Rivian, according to Partners Group’s Urs Wietlisbach.

Asset prices may be climbing and sale processes speeding up, but the safest place for people to invest their money these days is in private equity rather than initial public offerings.

That’s the view of Urs Wietlisbach, co-founder of one of Europe’s largest private equity fund managers, Partners Group, who admits he has a vested interest. “You are much better off betting on the private equity industry today, on the buyout industry rather than on the public markets, for sure,” Mr Wietlisbach said on Wednesday. “I am completely convinced of this.”

As proof, he points to the fact that in 1990 about 85 per cent of IPOs had positive earnings and by 2020 it was only 20 per cent.

“Over the past three, four, five years, nine out of 10 IPOs were loss-making, big time loss-making,” he said. “It’s ridiculous.”

The problem was that markets were being dominated by technology-focused hype assets, which favour speculative growth.

Start-up electric-vehicle company Rivian was one of his examples, having soared post IPO debut to almost $US120bn, giving the loss-making company that has produced only a few hundred cars a higher market capitalisation than Ford or General ­Motors. It’s now valued at $US28bn ($39bn).

Food delivery IPO DoorDash also made his list of incredulity, being yet to break even despite its $US27bn valuation.

While stockmarkets had shifted to chase speculative growth, private equity funds had shifted their modus operandi to something significantly more safe by winding back their leveraging, said Mr Wietlisbach. Ten years ago, a buyout might typically involve 97 per cent debt and 3 per cent equity. Now that figure is closer to 50-50.

“On average you don’t have this high leverage any more in the private equity industry. You are backing the real economy and you are backing all industries and you are backing companies with earnings,” he said.

This meant private and public markets were close to swapping roles, he added. The broader economy was increasingly built in private markets.

Partners has cashed in on this trend to private capital. While Forbes puts Mr Wietlisbach’s own net worth at $US2.6bn, the firm’s annual profit jumped 82 per cent last year to $2.7bn.

The Zug-based firm has $US127bn in funds under management and is active in the Australian market, where it has $3.5bn of retail funds under management. Assets here include TraveLodge, SIA Global, Laser Clinics Australia, and the $4bn CWP Renewables, which is currently on the market.

Still, the explosive growth of private markets is having some negative consequences for its players.

Increased competition among private equity firms is driving prices higher, which makes fewer investments attractive.

Mr Wietlisbach said his firm took a look at Icon Group, and was rumoured to have previously looked at Healius but the prices were too high to meet its investment strategy.

“We are looking but the prices have been a bit elevated, so for many of these transactions we were not successful,” he said. “We had several deals in the pipeline that just walked away from us.”

In Australia, he said the continued focus was healthcare, as well as infrastructure, decarbonisation opportunities and new mobility, which involved technology-driven mobility services.

Another factor making good deals harder to find is the acceleration of the sales process from six months or more a decade ago to as little as six weeks now.

“The advantage of private equity was that if an asset was up for sale you had time to come up with an idea on the price, develop a business plan, you were able to talk to management to talk to suppliers,” Mr Wietlisbach said.

“We were a kind of ‘legalised insider’ at the time of the investment. Unfortunately that is over as the last years have changed dramatically.”

Partners went public in 2006 and has built a diversified platform that includes private equity funds, infrastructure funds and credit funds. In Australia, it has the $500m Partners Group Global Income Fund, a listed investment trust that was over­subscribed and currently offers the RBA rate plus 4 per cent.

“There is demand for this type of yielding asset,” said Mr Wietlisbach, who added that private equity financiers were significant users of the private credit market.

“Private equity markets need financing and a lot of times they like private debt because it’s more flexible, they need to be able to move things around.

“So private debt is usually used by private equity.”