Jamie Dimon on PE-backed companies; spotlight on healthcare investor VSCP

Morning, dealmakers. MK Flynn here with the Wire.

More regulation coming. JPMorgan Chase’s Jamie Dimon issued a bit of a wakeup call to the private equity industry in his annual letter to shareholders. It’s a long and wide-ranging letter filled with insights about the economy and well worth reading. This is the part I found especially significant to PE folks:

“The role of banks in the global financial system is diminishing,” wrote Dimon. “Possibly more important: The role of public companies in the global financial system is also diminishing.”

He continued: “In addition to banks’ shrinking global role, you can see that the number of public companies, which should have grown substantially over the past decade, is remarkably reduced. Instead, U.S. public companies peaked in 1996 at 7,300 and now total 4,800. Conversely, the number of private U.S. companies backed by private equity companies has grown from 1,600 to 10,100 — a remarkable increase.”

Dimon posed some important questions: “It’s incumbent upon us to figure out why so many companies and so much capital are being moved out of transparent public markets to less transparent private markets — and whether this is in the country’s long-term interest,” he wrote. “We do need to ask some questions: Do we want public companies? Are we okay with more and more of our capital markets being private and, therefore, less regulated? If I were a shareholder of a company, I would ask myself, do I really think that all the rules we impose on public companies actually make them better? Finally, we need to consider, is it a good thing that many investors won’t have the opportunity to invest in these companies if and when they are private?”

He concluded with some advice for private equity investors: “We need to study this public market diminishment thoughtfully and deeply — particularly since more regulation is coming that will affect this trend. This is a good time to think through and create the outcomes we want — and not just let multiple, often well-meaning but uncoordinated legal, regulatory and policy decisions take us where we do not want to go.”

Founders and carve-outs. PE Hub’s ongoing series focused on private equity firms investing in healthcare continues with insights from Adam Feinstein, managing director, Vesey Street Capital Partners. Feinstein founded VSCP in 2014 and has served as managing partner of the firm since then. Previously, he was the senior vice president of corporate development, strategic planning and office of the chief executive officer at LabCorp.

“We have a focused strategy that allows us to leverage our significant healthcare services industry knowledge and our vast network,” Feinstein told Aaron. “Because we have those things, our sourcing strategy consists of backing founders and corporate carve-outs. We typically do not purchase businesses from other PE firms, so we tend to do deals with founders who are looking for a true partner to help them grow and scale the business.”

One area the firm prides itself on is corporate carve-outs.
“Carve-outs are also where we really differentiate ourselves,” he said. “We’ve completed three carve-outs in the last eight years and those are a function of our relationships with sellers, like large healthcare companies that have non-core segments, but these are great businesses. These are typically not auction deals, so it is all about relationships and trust. They are looking for a partner who they know can move quickly and be a good steward for that business after the transaction.”

For more, read Aaron’s profile of the VSCP.

From allocator to investor. “A major GP-led secondary process that recently closed, run by Accel-KKR, featured a group of co-lead investors that included a US public pension – one of the rare times such an organization has participated directly as a co-lead on a secondary deal,” Chris writes in a story on Buyouts. The pension fund was the Los Angeles County Employees’ Retirement Association. “The presence of a US public pension system as a lead investor is a reflection of the growing sophistication and the desire on the part of some big US public plans to take more direct roles in investment management,” Chris reports.

“Traditionally, US public pensions have been content with their passive roles in private equity, but as Canadian pension systems like CPPIB and Ontario Teachers’ Pension Plan have established themselves as direct investors, some US plans are moving – at smaller scale – in a similar direction.”

Click here for the full story.

In case you missed. Be sure to check out our annual package celebrating the best exits of 2021. Buyouts and PE Hub named Deals of the Year winners in six categories: Large Market, Small Market, Turnarounds, Secondaries, International and the overall Deal of the Year (falling under the Mid-Market category this year). Winners include Francisco Partners, EQT and more. Start here to read the full coverage.

That’s all for now.

Until tomorrow,
MK