Prof G Markets: (HBO) Max, Chipotle & Cava’s IPO, Private Equity’s Public Sales, and the TikTok Ban

Valuation

Private equity firms often face the challenge of deciding when to exit their investments in public markets. Scott Galloway explains that these firms are motivated by mathematical evaluations, focusing on fundamentals like price-to-earnings ratios rather than past IPO prices 1. He highlights that private equity firms typically hold onto their stakes for an average of three years post-IPO, slowly selling their shares in follow-on sales 2. This strategy allows them to continue charging management fees, creating an incentive to retain holdings longer than necessary.

Ignore the IPO price, and this is what you're supposed to do as an investor. You're supposed to ignore history.

--- Scott Galloway

This year, however, has seen a surge in follow-on sales, with many deals priced below the IPO value, indicating a shift in market dynamics 2.

   

Critiques

Critiques of private equity and hedge fund strategies often center on their fee structures and performance. Scott shares his personal experience, emphasizing the importance of avoiding high fees and advocating for diversification and low-cost investments 3. He argues that the industry is largely built on marketing and the fear of missing out, rather than delivering superior returns 4.

The key is diversification and low fees.

--- Scott Galloway

Scott also references Warren Buffett's famous bet against hedge funds, which demonstrated that simple investments in the S&P 500 can outperform more complex strategies over time 4.