Radio listeners in the late 90s were serenaded by a soulful Paula Cole asking “Where have all the cowboys gone?在歌里, the woman protagonist begins with dreams of a happy ending and a loving relationship, 但很快就想知道她的约翰·韦恩或独行侠在哪里. The song ends with acceptance of a daily life filled with chores and spousal trips to the bar.
Investors of today are asking a similar question in “Where have all the good small caps gone?” Small cap stocks were once an asset class full of hopeful companies that the market knew little about, promising above average returns for those willing to hold a basket of these stocks. The idea was first documented by Rolf Banz in 1981 and famously used in the 1992 Fama-French factor model.
因为这研究, 然而, the outperformance of small cap stocks over large cap stocks has been non-existent. 下面我们展示了1979年以来的小盘股与大盘股的比率. 在80年代早期短暂的出色表现之后, 小型股的表现总体上逊于大型股. This has left investors scratching their heads and wondering: where are the good cap small companies?
The literature on attempting to answer “why” the small cap premium has essentially disappeared is prolific. 我们试图回答的不是“为什么”，而是“现在做什么”?”
对那些寻求小公司回报溢价的投资者而言, we highlight two potential approaches different than simply buying a broad basket of small cap stocks. 第一个方法是向私人股本进行分配.
Private equity is the ownership of private companies that seek outside capital and expertise to grow or reposition. 这些资金和专业知识可以成为风险投资经理, who for a minority stake in the company can help develop the product and roll it out to the market. It can also be a growth equity manager, who provides capital to expand operations or product lines. 也可以是收购经理, 谁希望通过简化老公司的运营来释放价值.
We believe investing in private companies versus public companies has two main advantages that can bring the small company premium to portfolios:
- Companies can focus on the long-term versus just trying to hit quarterly earnings, and
- Companies can leverage the talent and experience of the general partners of the private equity firm.
The typical private equity fund is 10 years in length to ensure these two things can play out. Private companies can invest in products and markets that do not need to show immediate return because they do not have to worry about their stock temporarily falling. General partners can develop a multiyear plan for the company and do not have to worry about investors demanding their money back if things are going slower than expected. This long-term approach can unlock value for which the impatient daily liquid stock market does not have tolerance.
We believe this is a main driver in why companies are staying private for longer. December 2020 saw Airbnb and Doordash both go public in the same week at $100 billion and $55 billion valuations. Microsoft went public at $777 million… Airbnb and DoorDash skipped the small cap arena altogether and debuted as large cap companies. All the growth that typically would have occurred in the public small cap space occurred in the private markets. 不管Airbnb和DoorDash作为公司有多好, 提供一个2,从这个起点来看，向公众投资者提供805倍的回报似乎不太可能.
Fast growing companies’ preference to stay private longer leaves the broad public small cap index in a pinch. 根据Strategas的数据，超过40%的小盘股公司都没有盈利. 这比上世纪90年代末的10% - 15%有所上升. It is quite possible the public markets have become a place for small caps to raise money as a last resort, 让选择变得至关重要. This selectivity is our other path to consider for investors looking to gain access into good small cap companies.
针对那些不愿或无法在私人市场投资的人, finding an active small cap manager who takes a private equity approach can be fruitful. This manager would look to take a meaningful stake in the public company to have a material influence at the board level. This is something that can only be done in smaller companies as 5% of a company like Microsoft with a $2 trillion dollar market cap is larger than almost all active funds.
经理会对公司持有很长时间. 以释放上市公司的价值, managers need to be able to see a catalyst for change and then give time for that to play out. They need to not be worried if the company misses a quarterly earnings number, 只要他们朝着长期计划努力. 持有时间较短的基金经理往往更多地进行交易，而不是投资, 而且不太可能释放这种价值.
经理也会很协调. Be willing to invest in funds with reasonable lock up periods (1 – 4 quarters.) This alignment allows the manager to let his thesis play out without having to worry about investors running for the door after a quarter or two of bad performance. A low management fee and reasonable performance fee can also align the manager. 这促使他们不去收集资产, 但要寻求真正的超额回报, 与投资者结盟.
而宝拉·科尔歌里的那个女人却从未找到她的牛仔, we believe happy endings are still possible for investors seeking good small cap companies. Though buying a broad basket of small cap stocks may not give investors the premium they want, they may still seek these companies in the private markets or through a selective in the public equity managers.
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