The Luxembourg-based firm came close to an offering last year, but pulled the plug after Russia invaded Ukraine and markets seized up.

Since then, CVC has pushed further into new asset classes and raised the largest-ever buyout fund, an impressive $28 billion haul in the midst of a challenging fundraising environment.

Now, as markets rebound, the group is working with Goldman Sachs, JPMorgan, and Morgan Stanley to prepare for an Amsterdam listing that will look to build on a $15 billion valuation set in the 2021 sale of a minority stake to Blue Owl.

CVC’s offering follows a number of other private equity listings in recent years, though comes at a time when investors are grappling with a decidedly less attractive buyout environment. Tepid deal flow, expensive financing, and retrenched exit valuations have driven disappointing market performance among peers — Bridgepoint has fallen nearly 50 percent since the start of 2022.

Hands Off the Carry

CVC’s path to a public offering was in part prompted by European rival EQT. The Swedish firm listed in 2019 with a unique structure that handed investors a stake in its management fees without giving up any of its carried interest, or share of investment profits.

“The light went on” for some CVC executives after EQT’s listing, when an IPO “felt more attractive”, a person with knowledge of the matter said. “Suddenly there’s a group of people saying I love these management fees, I love the sheer predictable dullness of them,” they added.

Kaye Wiggins, Financial Times

While shareholders share in a smaller pie when carried interest is excluded, they assign more value to recurring and predictable management fees. That’s handed EQT the industry’s richest valuation and prompted other firms to consider the novel approach.

A Meritocracy or Toxic Environment?

The shift to carried interest retention holds more importance for CVC than peers thanks to the group’s adoption of a unique compensation model.

Most private equity firms allocate carried interest to their investment professionals at the fund level, meaning their personal upside is dependent on the performance of a broad basket of deals.

CVC instead operates with a deal-by-deal carry model, one of the few large-cap funds to do so. In this approach, professionals’ performance-based compensation is tied only to the deals that they execute.

Even within specific deal teams, the firm has the power to realign allocations to different investors. Rather than a guaranteed lion’s share for the most senior employee, a junior investor could take home the biggest slice if they sourced a deal or otherwise had an outsize execution impact.

CVC’s strong returns history has proven out the model, though insiders say it’s also contributed to a uniquely aggressive culture within the firm. Former employees describe a cutthroat environment with an “eat what you kill” mentality as investors fight to land in coveted deal teams.

But, while deal-specific carry can hand professionals outsize windfalls, it also works in the opposite direction. Loss-making deal teams are hit with ‘negative carry,’ requiring them to dig their way out of a compensation hole with future successes before they see another distribution.

While unpleasant for professionals forced to take a negative hit, CVC’s industry-leading 1% loss ratio does, again, support the framework.

Use of Proceeds

CVC has adopted a similar growth strategy to peers like Blackstone and Apollo, opting to build a diversified asset management platform reaching far beyond its traditional buyout roots.

It makes sense — there are only so many attractive LBO candidates available, and a growing number of firms competing for the same assets will naturally cap both returns and future growth.

To shareholders, that future growth is critical. Publicly traded managers feel intense pressure to grow assets under management as investors demand growth in the management fee pool.

That pressure is likely to be felt more acutely for CVC than its peers given its carried interest retention.

The firm has already been hard at work building its asset base and fee pool — since canceling its original IPO, CVC acquired private equity secondaries investor Glendower Capital and picked up infrastructure investor DIF Capital Partners.

Looking to the future, CVC management has already said they plan to leverage IPO proceeds to finance further acquisitions, including a deeper expansion into infrastructure and real estate. Next on the roadmap could be a Blackstone-esque move into the large (and lucrative) retail market.