As capital floods private markets, Apollo Global Management co-founder Joshua Harris believes investors are finally taking steps toward properly valuing publicly-traded private equity firms.
“It’s getting there,” he said Thursday on stage at the CNBC Institutional Investor Delivering Alpha conference at The Pierre hotel in New York. Harris said hedge fund shareholders of private equity firms are being replaced by more general investors like index and mutual funds, a shift that accelerated as firms converted to so-called C-corporations.
Shares of Apollo — which earlier this month completed its conversion to a corporation from a publicly traded partnership — have climbed about 67 percent this year. The private equity firm has been growing through diversification over the past decade, with a total $312 billion under management at the end of June, including credit and real assets.
Harris said that companies with stories that can’t be simply explained to public market investors may have more success seeking capital in private markets. Buyout firms including Apollo, which likes complexity, are overseeing an expanding pool of workers at the companies they own.
“If you don’t fit the box in public markets, you can’t raise money,” said Harris. “We’re getting to be pretty large as an industry.”
Private equity has been popular with institutional investors.
“Our private equity business, net of all cost, is our top performer,” said Ashbel Williams, executive director and chief investment officer of Florida State Board of Administration, during an earlier discussion on stage at the Delivering Alpha event. Williams, who oversees more than $150 billion of assets, including those under The Florida Retirement System Pension Plan, said its private equity assets include venture capital.
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Companies are finding plenty of capital in private markets, turning to alternative asset managers for both equity and loans.
“We have to recognize that a lot of growth is happening in our private markets,” said Jay Clayton, chairman of the Securities and Exchange Commission, while on stage earlier on Thursday at the Delivering Alpha conference. He said they are “no doubt riskier” than public markets, but that management teams can apply similar rigor in private markets.
“There are lots of people operating in the private markets who are very good at understanding how companies perform and delivering performance,” Clayton said. “Are the rules not as rigorous as the public markets? Of course not.”