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Panel Detail:
Tuesday, April 28, 2009
6:30 AM - 7:45 AM
Private Versus Publicly Held Financial Institutions: Which Are Best Positioned?
Speakers:
David Kuplic,
Chief Investment Officer, Securian Financial
Mark Lipson,
Managing Director and Senior Resident Officer, Bessemer Trust
David Marks,
Executive Vice President and Chief Investment Officer, CUNA Mutual Group
James Weishan,
Chief Investment Officer and Senior Vice President, Investments, Sentry Insurance
Moderator:
Sarah Coxe Lange, Managing Director, Guggenheim Partners Asset Management
Why are private companies doing well in the current environment? Instead of focusing on the companies that have failed and trying to identify what went wrong within them, this panel suggested that we examine what private companies are doing right and why they are doing better than their public counterparts.
When asked how private firms different from public companies, Dave Marks had a ready answer: "Culture eats strategy for breakfast." As a public investment officer, it is very easy to be worried about "the now": this week, this month, this quarter, this year. But private firms can focus on the long-term direction of the company and the needs of their customers without worrying about analysts, quarterly reports or the press, creating a stark contrast of cultures.
Mark Lipson of Bessemer Trust stressed that "we don't have a daily share price to distract us," one that might give rise to short-term thinking. Freed from fluctuating stock prices, companies can focus more fully on their core competencies, partnering with clients and customers, customer retention and market share. Being private allows a company to be more nimble and flexible, and most importantly allows companies to make decisions more quickly and efficiently. It also allows for more efficient capital utilization and keeps management more focused on knowing what the margin of safety is in the organization.
There are drawbacks, however, to being a private company. One of the biggest is the lack of access to capital, which is not as easily obtainable as it is for a public company. Another pitfall of being private can be the lack of shareholder discipline that exists for publicly traded companies. Activist shareholders can steer a company in the right direct and call for change when the current management is not pursuing the right strategies to create shareholder value and increase the profitability of the business.
The lessons to be learned from private companies can be profound — and staying "under the radar" can be advantageous in fragile economic times. Privately owned companies tend to have more discipline and don't have the luxury of "playing with the houses money to the benefit of senior management," according to Scott Minerd of Guggenheim. Instead, they can focus on longer-term thinking that tends to enhance decision-making skills.
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