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

Management Tactics

Private equity firms are strategically navigating the public markets by holding onto stakes longer than traditionally expected. Scott Galloway explains that these firms often sell their stakes incrementally, a process known as follow-ons, to maximize returns over time 1. This year, however, has seen a significant increase in follow-on sales, with many priced below the initial IPO value. Ed Elson notes that this trend is driven by the desire to avoid marking down the value of their stakes, which would impact their ability to raise future funds 2.

There's a lot of jazz hands and a lot of things that go into timing around sales of private investors.

--- Scott Galloway

This strategy allows firms to continue charging management fees while holding onto public holdings, creating a financial incentive to delay full exits 3.

   

Fee Critique

The debate over investment fees in private equity highlights the potential drawbacks for investors. Ed Elson references Warren Buffett's bet that investing in the S&P 500 would outperform hedge funds over a decade, emphasizing the impact of management fees on returns 4. Scott Galloway advises against paying high fees, suggesting instead to invest in low-fee diversified ETFs and index funds 5.

The key is diversification and low fees.

--- Scott Galloway

He argues that the asset management industry often prioritizes fee collection over actual investment performance, turning firms into asset collectors rather than active investors 6.