| | APRIL 2025 8OPINIONIN MYThe mid-point of 2023 has just been reached, and investors are currently facing tension. Interest rate and inflation tensions have dominated most of the headlines and sitting on top of all this is the tension associated with asset class and security selection. But tension is not necessarily a bad thing. It can create clarity and actually be a positive driver for investors, their portfolio companies, and the companies they may be looking to back. Multiple layers of tension involve analyzing and balancing competing demands. And we believe companies that effectively manage these competing demands tend to have better decision-making and more creativity, which leads to innovative solutions. In 2023, some of these tensions are brought to the fore.For investors, the tension about when to invest and in what asset class remains paramount. To stay on the sidelines would ensure no loss of capital, but it also means investors miss out on opportunities. Putting money to work may feel risky, but this is the business that investors are in ­ to manage the risk and reward profile. To take the big picture, investors who were out of the market post-GFC missed out on great opportunities and fund vintages that outperformed. Most recently, America's largest pension plan, Calpers, attributed its underperformance in the last decade to halting its private equity program from 2009 to 2018, with an estimated impact of $11bn to $18bn.So, while it is tempting in this environment to do nothing, the tension of missing out drives the need to put capital to work but sensibly and with downside protection. Private Capital or Public Markets? In recent years, there has been a flood of capital into the private markets, enabling companies to `stay private for longer'. This has shifted the discussion to companies potentially staying private forever on the assumption that the private market exists to fund these companies in perpetuity. However, the tension here is that unless a business is profitable, it is more likely than not that there are third-party capital investors who require not only a return on their capital but also a liquidity event, often within a set time horizon. So, a clear distinction must be made between `patient' and `perpetual' capital. Recently, IPOs have received negative press due to a number of factors: · Perceived value destruction upon listing from poor aftermarket performance, which is partly attributed to broader market volatility and, in some cases, listing too early in the lifecycle; · Increased time commitments as listing also entail continuous disclosure obligations and investor relations obligations; and · Cost burdens from maintaining a listing. However, for a growth company, a listing has many benefits, including:· Instant liquidity for all shareholders, including founders, existing investors, and employee shareholders, with also an almost continuous valuation marker.· Reputation and signaling benefits as a listed company is synonymous with being more trusted given the higher governance requirements as well as the obligation to produce audited accounts, which is important for customers, suppliers, and employees; and· Acquisition currency and the ability to raise capital quickly to execute growth plans.The common thread is that in the current market environment, the bar is high to raise capital from both private and public MANAGING INVESTMENT TENSION REMAINS PARAMOUNTBy Karen Chan, Portfolio Manager, Perennial PartnersKaren Chan
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