Concentrated Equity Risk Management: Hedging Recent IPO Exposure
- Institutional investors have increased their allocations to PE and VC.
- Similar to public-equity markets, PE and VC have exhibited robust
performance in recent years, with many portfolio companies evolving
into publicly listed stocks.
- Managers have been extending their holding period of fund investments
relative to historical averages. This includes holding investments in the fund
well past the restricted date post-IPO, when positions were typically
distributed to the end investor.
Thanks to these factors, investors have found themselves with outsized exposure to a highly appreciated, concentrated equity position. The positions are often large enough to create a significant amount of idiosyncratic risk in the broader fund. Investors must evaluate a series of trade-offs and considerations to determine which risk-management solution may be the most appropriate for their circumstances.