By Frédéric Stolar, Managing Partner d’Altaroc.
Private equity has historically outperformed the stock market over the past several decades.Studies by Bain & Company and Preqin, among others, underline this time and again. According to Frédéric Stolar, Managing Partner of Altaroc, this is mainly due to the way private equity works: proactive selection of companies and strategically prepared exits.
The right companies, at the right time
Unlike stock market investors, private equity funds do not wait until companies are in the shop window. They often approach promising companies years before they are officially launched.
The focus is on sectors with structural growth, such as digitalisation, healthcare, renewable energy and industrial automation. Within these sectors, investment teams target companies with sustainable competitive advantages, such as dominant market share, proprietary technologies, exclusive distribution channels or strong brands.
The funds engage with management at an early stage, building trusting relationships, gathering strategic information and conducting detailed analysis. This allows them to act quickly and purposefully as soon as a possible acquisition arises. This approach prevents overbidding and increases the chances of successful deals.
Exits are not left to chance
The acquisition is followed by meticulous preparation of the sale. Together with management, the private equity fund develops a transformation plan: optimising processes, digitalising, improving margins and sometimes expanding through acquisitions. Whereas public investors are mainly concerned with quarterly results, private equity looks further ahead: towards the exit.
From the third year onwards, funds already investigate who might be interested in an acquisition. By already gauging the market at that stage, they can adjust the strategy and position the company for the most promising sale. At the time of sale, the company is in an optimal operational and strategic position.
Long breath pays off
Where listed companies are under pressure to perform in the short term, private equity funds can focus on sustainable value creation over a period of five to seven years.
This longer investment horizon has clear advantages. Fund and management pull together for longer periods and work towards sustainable growth, rather than focusing on quick profits. There is more peace of mind to make choices, without the delusion of the day or turmoil in the stock market ruling. Moreover, a strategic moment can be chosen for selling – when the market is favourable and buyers are interested.
This is a world of difference from stock market investments, where price fluctuations are constantly anticipated and long-term strategies are often under pressure.
Attractive returns
Private equity operates with a well thought-out strategy. From selection to exit, every step is controlled and prepared. And it is precisely this control over the entire process that enables higher returns. These are precisely the knobs that passive investors cannot turn on the stock market.
For investors who want to exploit the full potential of private equity, it is essential to understand the mechanisms behind it. Private equity is not just about diversification, but about targeting growth and value creation.
In short: those willing to tie up their money for a bit longer get a grip on growth and attractive return prospects in return.
