Friday, October 25, 2013

Public Equities vs. Private Companies

Earlier this year, John Asker and Alexander Ljungqvist, both of NYU-Stern teamed up with Joan Farre-Mensa, of Harvard, to publish the results of an interesting study they performed, with the engaging title: "Corporate Investment and Stock Market Listing: A Puzzle?"

They state their conclusion as follows:

"This paper compares the investment behavior of comparable public and private firms, matched primarily on size and industry. Our results show that relative to private firms, comparable public firms invest considerably less and in a way that is significantly less responsive to changes in investment opportunities, especially in industries in which stock prices are quite sensitive to earnings news."

This conclusion bolsters our Evergreen hypothesis that pensions will realize better portfolio performance while helping to build a better world by de-financializing their portfolios, replacing Public Equities with Evergreen sponsorship of private companies.

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