(Reuters Breakingviews) - London investors are getting a chance to ride Goldman Sachs’ (GS.N) tentacular connections to hedge funds and buyout firms. Petershill Partners, which buys stakes in alternative asset managers, is planning a stock market listing which could value it at $5 billion or more. It’s a punt on the enduring boom in alternative assets. It also requires the Wall Street firm to keep finding attractive new investments.
Petershill is the name Goldman gave to a series of funds which bought minority stakes in alternative asset managers. It has grown rapidly since 2007 and holds stakes in prestigious firms like Caxton Associates and venture capital firm Accel-KKR. The listing will provide permanent capital for Petershill and raise $750 million for new purchases. Goldman manages the portfolio in return for a chunk of the company’s revenue.
The offering comes at an opportune time. Private assets are in hot demand, as low interest rates force pension funds and insurers to look beyond traditional equities and bonds. Petershill offers exposure to fund managers whose shares often remain tightly controlled. The 19 managers that Petershill currently owns stakes in grew their combined assets by 21% a year between 2018 and 2020. The company’s share of their profit – effectively its revenue - more than doubled to $243 million over the same period.
That makes a mooted valuation of $5 billion look conservative. If revenue grows by 10% a year, in line with the sector, it would reach $294 million by 2022. Assume a quarter of that goes in Goldman’s fees, interest and tax. The resulting net income of about $220 million would imply a valuation multiple of roughly 23 times. Private equity manager Bridgepoint (BPTB.L), which listed earlier this year, trades at over 30 times, according to Refinitiv data.
There are risks. The boom in hedge funds and private equity could grind to a halt, or the money chasing esoteric strategies could erode returns. Above all, though, Petershill will depend on Goldman’s ability to keep persuading top fund managers to sell part of their firms. The company has a fully independent board which will hold the U.S. bank to account. But Goldman has a long-term management contract, and the underlying assets can’t be easily sold. That makes the IPO a fitting test of the alternatives boom, and of Goldman’s reputation.
