IMAGE: TEAM VENTURES
WHEN A firm that invests in other companies decides to sell its own shares to the public, it must have a good reason. On November 24th Team Ventures broke new ground as Nepal’s first private-equity firm to list on the stock exchange, naming Siddhartha Capital as its IPO manager. The firm plans to issue 2.5m shares. Team Ventures is small by global standards, with a paid-up capital of Rs1bn ($7m).
Yet its decision to list places it at the centre of a debate that has preoccupied financiers from New York and London to Stockholm: should private capital go public?
Team Ventures was founded in 2016. It describes itself as “sector-agnostic”, meaning it invests in businesses across the economy. Its portfolio includes, among others, Dobhan Khola Hydropower, Annapurna Machha Dana Udhyog, Hulas Iron Industries, Bizbell and Laxmi Steels. It has recorded eight successful “exits”, a term for selling its stakes in companies, most recently in Sinduli Agro Company, which is now out of business, according to a data provider. The firm provides capital as well as strategic guidance to the companies it backs.
The logic of an IPO for such a firm is obvious. Listing shares provides permanent capital, which can then be used to expand. It turns the stakes of a firm’s partners into liquid wealth. A public listing also brings prestige, which helps when raising funds from investors. And shares can be used as a currency to pay staff and make acquisitions.
Private-equity firms have tried this before, with mixed results. The first big attempt came in 2006, when KKR, an American giant, listed a fund in Amsterdam. Within two years it had lost more than half its value. Blackstone, another American firm, listed its management company in 2007. Others followed before the financial crisis soured the market’s appetite. Between 2007 and 2019, listed private-equity stocks generally underperformed public markets.
The mood changed after 2019. EQT AB, a Swedish firm, listed with a structure that distributed most of its fees to shareholders. This reassured investors and boosted valuations across the industry. Other firms, including Bridgepoint in London and TPG in Texas, joined the rush. Going public has become respectable again.
But the gains for the investors who buy into these IPOs are less obvious. Public markets reward stable fee income more than volatile performance fees. That gives listed private-equity firms an incentive to raise ever-larger funds, because management fees are a percentage of assets. Yet evidence suggests that bigger fund size correlates with weaker returns. Transparency has costs, too. Disclosure of pay attracts scrutiny. Quarterly earnings reports create pressure for short-term results.
The trade-off is ugly. Founders gain liquidity and a permanent capital base. Public investors risk diluted returns as the firm’s focus shifts towards stock-market performance. Warburg Pincus, a private-equity firm that has stayed private, has consistently surpassed its fundraising targets by concentrating on returns. Blackstone, by contrast, has become the world’s biggest alternative-asset manager, but its sprawling diversification may have come at the cost of performance in some areas.
For Team Ventures, the global experience confers two lessons. An IPO would provide capital and credibility in Nepal, where financial markets are shallow. Yet the international record suggests that scale and permanence may undermine returns. The country’s small stock exchange, which is slimly traded and prone to brutal volatility, will magnify these tensions. The firm’s listing will be a sign of Nepal’s economic development. It will also be a test of whether private capital can go public without sacrificing its edge. ■
