Michael Mauboussin – Great Migration Public to Private Equity

**Patrick O'Shaughnessy** (0:00)
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Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

**SPEAKER_2** (1:21)
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
Clients of O'Shaughnessy Asset Management may maintain positions and the securities discussed in this podcast.

**Patrick O'Shaughnessy** (1:46)
My guest this week is Michael Mauboussin, the head of Consilient Research at Counterpoint Global. Michael is an all-time favorite guest here on the show and this is his fourth appearance.
We discuss one of the biggest topics in the world of investing, the shift from public to private markets that has taken place over the last several decades. We explore the reasons for this shift, the biggest overall changes in capital markets and what the future may hold. Along the way, we explore other fascinating topics like the rise of intangible asset investment, employee-based compensation as a form of financing and more. If you enjoyed this conversation, I urge you to read Michael's paper on the topic, which will be linked in the show notes. Please enjoy this great conversation with Michael Mauboussin.
Okay, Michael, for the first in-person podcast that I've done since early March, this is great. Great to see you as always. The topic of our conversation is your latest paper on the transition from public to private equity, which is effectively a book that you wrote. One thing that we've been talking about for several years just between you and I, and I know you've been thinking about forever. I think your motivation would be an interesting place to start. Why take so much time and effort to write a mini book on this key transition?

**Michael Mauboussin** (2:53)
There are a couple of things, Patrick. First of all, great to be with you and great to be with you in person. The first was in 2016, we wrote a piece about, we called it the incredibly shrinking universe of companies. There have been some academic work on this idea called the listing gap, which if you look at the size of the US economy and the population, is that we should have many more listed companies than we actually do. There was a beautiful symmetry because the data went from 76 to 2016, so it was 20 years up because the peak year for a number of public companies was 1996, and then from 1996 to slide down to 2016
That alone was a really interesting exercise and of course, this number of companies going up and going down as a function of basically supply and demand, what's coming in, what's going out, and breaking all that down was really interesting.
So obviously, the big input of what goes in and what goes out of the public markets is from the private market. To state the obvious, IPOs, venture capital being a big source of those IPOs to a lesser degree buyouts, and then of course, what's removed mostly mergers and acquisitions and the buyout industry playing a role in that. So this in a sense is a larger spinoff from that.
But the second thing is Patrick, I think we're having a cup of coffee with Brent Bishore. We're just sort of talking about the world. And I was saying to you guys, I'm not sure I have a really good understanding of the lay of the land here. I mean, I understand that these are different asset classes and I read all this stuff, but I really didn't have a clear synoptic view of both where these industries are, these asset classes are and how they got to where they are. So that was also motivating. So it was really just kind of a drive to learn about that. And as you saw throughout the piece, we try to sprinkle in a fair bit of history and I actually learned a little bit about sort of the genesis of the buyout industry. And I knew a bunch of that stuff, the genesis of the venture capital industry. So it was just trying to get a broader perspective on where we are. And I just think if you're in the asset management industry, again, whether you're in buyouts or venture or in public markets, this backdrop I think is very helpful for thinking about the world.