Continued Capital Flows

A Short (Very) Story

Recently I had the opportunity to talk to an acquaintance who sold his company for a considerable sum a decade or so ago.

Prior to, and even moreso, after the sale of his company he had been a dyed-in-the-wool investor. Said another way, his investment portfolio consisted of stocks, bonds and some cash. But in the last few years, he said he has gotten completely out of publicly traded stocks and bonds. His reasons for this were many and interestingly included a continuing decline in the number of public companies, the dominance yet passive nature of big institutional investors, the casino mentality of the markets and after some detailed study, the weakness of public company governance. Regarding the governance problem, I asked if he had read my book. He said no, that he had reached the conclusion about public company boards on his own.

Much, but not all, of his portfolio is now invested in private equity in a few of the larger and very top tier (regarding performance) private equity firms. Although this limits his liquidity, he said that is a second order concern after the first order of both solid investment returns over time and the desire to be invested, via the PE funds, in companies that will be governed and managed to maximize performance and value. That is how he ran his former company so an aggressive approach to building companies appeals to him.

This is obviously the view of just one person. But it may be a prescient and wise one as public company governance continues to become more complicated and bureaucratic. And, if there is an acceleration of change in state incorporation from Delaware to more management and “stakeholder” oriented states such as Nevada, performance will be at risk as recent research has clearly shown.