The CVC conundrum: fund investors love it, public markets don’t
The private equity firm is good at buyouts, but in an era when diversity is prized, that might not be enough to prop up its shares
Last September, private equity firm CVC chalked up a rare achievement: a record year for cash returned to investors, at a time when the wider industry was still limping through a downturn.
Yet far from sparking celebration among the Amsterdam-listed group’s public market investors, shares fell 4 per cent that morning. Rather than rewarding the previous year’s returns, analysts were fretting about sparse detail on how CVC would deliver the big increase in earnings that the market was counting on.
“It felt like they were holding back,” said one analyst that day. “It might be because they prefer to be conservative . . . they’ve left us a little bit confused.”
That earnings-day disappointment is symbolic of CVC’s conundrum: how to satisfy the demands of two very different types of investor.
The firm is revered by its fund investors as a strong private equity performer. But among shareholders — the public market investors — it has received a muted reception.
The group’s shares have for months hovered around the €14 price at which it listed in April 2024.
This month, an industry-wide sell-off sparked by fears about the vulnerability of private capital groups’ software investments to AI pushed CVC’s share price below that level.
The firm dodged the worst of the latest drubbing because it has less exposure to software companies than some of its rivals. But over the past year, CVC’s shares have shed 44 per cent of their value — performance that is at least 10 percentage points worse than most peers.
“I’m as flummoxed as everybody,” said one shareholder of the firm, which manages €200bn in assets across private equity, credit and infrastructure. “On the fundamentals they’re absolutely roaring.”
CVC declined to comment.
CVC’s share price fall can in part be explained by poor liquidity for newly public European companies, according to analysts and shareholders. But there are more company-specific factors at play, too.
The group is widely considered among the best at buyouts: its European private equity funds have returned more than four times invested capital excluding fees since 2021. The firm sent back 15 per cent of its private equity portfolio to investors in 2024, compared with the industry’s 11 per cent.
But unclear communication at the time of CVC’s listing set investors up for subsequent disappointment over its earnings from performance fees and investment income, which are generated when it sells portfolio companies. CVC’s IPO prospectus put these at €400mn to €700mn in the “medium- to long-term”, which the market took to mean by 2026, analysts said.
Shortly after the 2024 listing, analysts were forecasting that CVC would deliver more than €500mn in performance-related earnings for 2025 and €650mn for 2026. But as time has passed without CVC reporting earnings to support that, the consensus for 2025 has reduced by half — with results for the year due in March — and by a third for 2026.
“Estimate downgrades relatively proximate to a listing — it’s generally a sign investors don’t like,” said one.
Richard Clattenburg, portfolio manager at CVC shareholder T Rowe Price, said the firm had not changed its outlook and that its performance-fee earnings were “at the right place”. But, he added, “the way it was communicated at the IPO” had left room for misunderstanding.
CVC has recently hired a senior Morgan Stanley analyst to beef up shareholder relations. But its hazy forecast and hesitation to give more bullish guidance last September also speak to a culture of restrained communications. It is “typically more conservative and cautious in its guidance” than close peers, said Nicholas Herman, equity analyst at Citi.
He said the firm also marks its books conservatively relative to its average exit values, which can appear to investors like value creation is weak compared with less cautious competitors.
Bolder rivals have also built up bigger funds beyond the core private capital business of buyouts. CVC in contrast remains heavily weighted towards its flagship private equity funds, which has caused lumpy growth in management fees.
When big funds exit investments, as CVC has done, they lose management fees on those assets. Meanwhile, CVC’s next flagship vehicle is yet to start raising funds, causing a lull in fee growth. Private equity also produces more episodic performance fees than credit and infrastructure.
“If you want a smoother profile for fees, having a broader range of products raising on an ongoing basis will make a difference,” said Michael Sanderson, an equities analyst at Barclays.
Investors tend to reward smoother fee profiles with higher valuations. CVC’s shares have suffered as a result of its more volatile fee structure, adding to pressure on the firm to diversify away from one core private equity strategy. That pressure was “very keenly felt”, one person familiar with the group said.
Half of its fee-paying assets are now outside traditional private equity, and in January, CVC announced the purchase of Marathon Asset Management, a New York firm with $24bn in assets that specialises in asset-based, liquid and opportunistic debt.
CVC said buying Marathon would fit its growing wealth and insurance channels, and that acquisition came soon after a deal to manage up to $3.5bn for insurer AIG. But neither transaction moved CVC’s share price significantly, and after the Marathon purchase closes, a third of the total fee-paying assets will still come from three outsized flagship buyout funds. The latest of these raised €26bn in 2023; most other CVC funds are smaller than €10bn.
The firm has been looking for other firms to buy, but talks with high-profile US direct lenders HPS and Golub Capital led nowhere.
A person close to CVC said it expected organic double-digit growth to take fee-paying assets to €200bn by 2028, with Marathon providing additional growth.
The firm’s hunt for a direct lender and a real estate group continues, however. Meanwhile, shareholders hope the market will soon price in its 2027 flagship buyout fundraising.
As one shareholder put it: “the question is when will that crossover happen”?