Long Goodbyes: Why do Private Equity Funds hold onto Public Equity?
72 Pages Posted: 25 Jan 2021 Last revised: 30 Jun 2021
Date Written: June 30, 2021
We analyze how private equity funds sell down their stakes in companies they take public. The average duration of post-IPO holdings is 3 years, whereas lockups expire after 6 months. PE-backed IPOs perform well during the lockup, but we find no evidence that GPs add value for investors through the timing or speed of their sell-down strategies. GPs appear reluctant to sell losers, which is consistent with behavioral biases or fear of litigation. Faster sell-down strategies could have saved investors around $3.5bn in management fees alone. We discuss how, in the future, stock distributions followed by Direct Listings could significantly increase net returns to LPs.
Keywords: Private Equity, Initial Public Offerings
JEL Classification: G23
Suggested Citation: Suggested Citation