Public Equity Research Articles

Gender Lens Investing: A Scoping Review from Theoretical Foundations to Public Equity Applications

This scoping review explores the dynamic field of Gender Lens Investing (GLI), examining its evolution from a niche approach to its current status as a widely recognized investment strategy with the potential to contribute to sustainable development and yield social, financial, and economic benefits. This study provides a comprehensive overview of the theoretical foundations of GLI and its practical applications across public equity markets. By conducting research across four major databases, we performed a thematic analysis that identified four principal themes: Benefits and Impacts, GLI Strategies, GLI Instruments and Innovations, and Challenges and Barriers to Implementation. Key findings reveal an increased implementation of GLI in various forms and a gradual increase in publications, reflecting growing interest within academia and industry. Despite these advancements, critical gaps remain in understanding the financial and social impacts of GLI strategies and instruments. While GLI has been broadly defined and implemented, further empirical research is necessary to evaluate the effectiveness of GLI in public equities and its long-term impacts. The limitations of this review include a focus on English-language publications, which might limit the comprehensiveness of the analysis.

A guide to 130/30 loss harvesting

We analyze the effect of leverage on tax-managed public equity strategies for different types of investors by running back-tests on hypothetical portfolios. We found the average 130/30 long/short portfolio funded with cash generates 2.7 times more capital losses than the average long-only portfolio over the first 10 years. For an investor with a sufficient supply of short- and long-term gains, these additional losses translate to average pre-liquidation tax alpha (“TA”) of 4.41% per year. Liquidation reduces TA by about half, while a lack of short-term capital gains to offset reduces TA by approximately 40%. In combination, those investor characteristics may render a long-only loss harvesting portfolio or a low-cost ETF more desirable than a long/short tax-managed equity portfolio after costs and fees are taken into consideration. Leverage can also be used to revitalize an ossified portfolio whose loss-generating capacity has diminished.

Blue Economy Financing Solutions for the Fisheries and Aquaculture Sectors of Caribbean Island States

This study reviews various financing solutions available for fisheries and aquaculture development in Caribbean small island developing states (SIDS) and Barbados, Grenada, and St. Vincent and the Grenadines. Previously identified financing needs within the fisheries and aquaculture sectors have been matched with the most suitable financing mechanisms. However, the use of blue levies is recommended and applicable in almost every scenario, as they allow these sectors to drive their own development in financing research and conservation projects to their own benefit. The use of “blue tokens” with sufficiently low repayment coupons allows development projects to gather public support for fisheries, thereby increasing the likelihood of the project being successful through community buy-in. The possibility of natural capital being traded as public equities as “Natural Asset Companies” provides the opportunity for development projects to fund themselves. The review concludes that natural capital can be leveraged as the base through which public-private partnerships (PPPs) can facilitate optimal delivery of ecosystem services, benefit multiple stakeholders, and provide numerous development opportunities. An enabling environment for debt and lending with low-interest loan repayments is also applicable to almost every scenario, as it facilitates access to capital finance for infrastructure development and the acquisition of increasingly sustainable fishing equipment. Steps towards generating an enabling environment for financing fisheries and aquaculture in the Caribbean region are also discussed. The establishment of dedicated financing institutions, PPPs, and sufficient data reporting infrastructure for the fisheries and aquaculture industry are essential for driving development in these sectors. Likely, the largest limiting factor in financing Caribbean fisheries and aquaculture industries is a lack of awareness of the range of finance and financing mechanisms available to stakeholders, as well as an enabling environment for financing blue Economy sectors. This review is thus intended to aid financing institutions, Blue Economy developers, and specifically Caribbean fisheries and aquaculture stakeholders and Caribbean governments by raising awareness of the financing mechanisms available, encourage the incorporation of their use in the fisheries and aquaculture industries in the Caribbean, and encourage policymakers to create an enabling environment for financing development in these crucial sectors.

Equity Investment in Physician Practices: What's All This Brouhaha?

There have been two waves of equity-based investment in physician practices. Both used a combination of public and private sources but in different mixes. The first investment wave, in the 1990s, was led by public equity and physician practice management companies, with less involvement by private equity (PE). The second investment wave followed the Affordable Care Act and was led by PE firms. It has generated concerns of wasteful spending, less cost-effective care, and initiatives harmful to patient welfare. This article compares the two waves and asks if they are parallel in important ways. It describes the similarities in the players, driving forces, acquisition dynamics, spurs to consolidation, types of equity involved, models to organize physicians, and levels of market penetration achieved. The article then tackles three unresolved issues: Does PE investment differ from other investment vehicles in concerning ways? Does PE possess capabilities that other investment vehicles lack and confer competitive advantage? Does physician practice investment offer opportunities for supernormal profits? It then discusses ongoing trends that may disrupt PE and curtail its practice investment. It concludes that past may be prologue, that is, what happened during the 1990s may well repeat, suggesting the PE threat is overblown.

Competing for private investments in public equity in China: The role of corporate philanthropy

AbstractThis study examines whether corporate philanthropy improves firms' competitiveness in the market for private investments in public equity (PIPEs). Adopting a Chinese PIPE sample between 2007 and 2019, corporate donations have been observed to increase the likelihood of issuers' PIPE applications being approved by the Chinese Securities Regulatory Commission (CSRC). It is also shown that CSRC spends less time reviewing PIPE applications of donating firms. Consistent with the signalling argument, we find that firms with corporate donations may be unlikely to act opportunistically in PIPE issuing. Further, the effect of corporate donations is stronger in competitive industries and large‐scale PIPEs. Finally, short‐run post‐issuance abnormal returns tend to be higher for PIPE issuers with corporate philanthropy. Overall, our findings indicate that corporate philanthropy can serve as a differentiation strategy to compete for PIPEs.

The role of existing shareholders in private equity placements in China

AbstractIn this article, we investigate how the participation of firms’ existing shareholders affects the pricing and valuation of private investments in public equity (PIPEs). Using a large sample of PIPEs issued by Chinese listed firms from 2006 to 2019, we find that the effective discount and long‐term buy‐and‐hold abnormal stock returns of PIPEs with existing shareholder participation are significantly higher than those with only new investor participation, after controlling for heterogeneous types of PIPE investors. However, the superior post‐PIPE stock performance of deals with existing shareholders is not driven by improved operating performance but by tunneling activities such as frequent dividend announcements, related‐party transactions, and positive earnings management during the lock‐up period. Our findings suggest that the effect of existing shareholders’ participation in private equity placements is more consistent with the tunneling hypothesis than the certification hypothesis. We document that the tunneling incentives are stronger when firms face greater financial constraints and can be mitigated when the firm's corporate governance is stronger.

U.S. Public Equity ESG Fund Composite and Parnassus Core Equity Fund: Performance and Factor Attribution

U.S. Public Equity ESG Fund Composite and Parnassus Core Equity Fund: Performance and Factor Attribution

Network of public equity funds and investment performance in South Korea

Using overlapped portfolio data on public equity funds in Korea, the authors construct several types of fund-stock weighted bipartite networks and measure fund network centrality. The authors also examine the relationship between network centrality and fund investment performance. The authors' results are three-fold. First, the authors find that the fund centrality of the network in which funds and stocks are connected based on the most active investing behavior positively affects the fund performance. Second, the funds with a high centrality level based on the same network generate higher returns by holding stocks with high value uncertainty. Third, the authors find that fund centrality is not associated with herd behavior. Based on these results, the authors argue that fund centrality is a proxy of information advantage and skill of fund managers. The authors' paper shows that network analysis could be a new way to identify funds with better performance and measure the skill and information advantage to construct an optimal portfolio.

Do impact investing opportunities exist in public equity? An empirical examination

Even though impact investing increasingly establishes a presence in public equity, research confirming that this asset class is feasible for impact investments is lacking (Phillips & Johnson, 2021). This has resulted in queries about unrealistic assumptions of achieving positive social and environmental impact, alongside financial returns, in a public equity setting (Bernal et al., 2021; Boscia et al., 2019). Resultingly, the public equity approach to impact investing has been accused of being the first step towards a total dilution of the industry’s original mission of attaining goals that are not feasible through neither pure philanthropic grants nor conventional investments. Aimed at bridging the current research gap, within the literature of impact investing, this paper examines whether impact investing opportunities exist in public equity. Based on an empirical foundation of 163 publicly listed companies, which are the target of impact investments made through impact funds, it is found that impact investing opportunities exist in public equity when evaluated based on long term measures of shareholder value creation. Theoretical implications suggest that the concept of impact investing does not need to be refined in a public equity setting and that the field could advance from discussing the fundamental assumptions to start defining the boundaries of impact investing in public equity.

Long-Term Capital Market Assumptions Public Equity

Long-Term Capital Market Assumptions Public Equity

The Potential and Governance of the Metaverse for Healthcare

As the Metaverse continues to gain traction, applications the Metaverse in healthcare and wellbeing have also been growing. The rights of each user should be protected after clarifying who the service user is and the legal status of the service or action on the metaverse. Moreover, perspectives such as public equity and fairness are also critical. Appropriate agencies in Japan and abroad are required to develop guidelines and standards based on specific use cases which consider these points.

Evidence-based climate impact: A financial product framework

Emerging evidence suggests that institutional investors' climate-related exclusions are overwhelmingly concentrated in public equity relative to other asset classes. A concomitant body of evidence suggests that exclusions in public equity are unlikely to affect company behaviour nor to have a perceptible impact on real-economy emissions. This paper evaluates the available substantiation for investor impact claims across asset classes, including through stewardship activities and social discourse, and identifies gaps in research on private climate finance. From this analysis emerges a framework for the characteristics of a product that would combine the highest-impact levers – from sector focus and exclusion methodologies to asset class and investor engagement efficacy – to maximise the probability of institutional investor impact on real-world emissions. The paper concludes with a call for further research and the creation of a fossil fuel phase-out bond index with a variety of stewardship characteristics designed to maximise investor impact on company-level behaviour change, cost of capital for fossil fuel expansion and, ultimately, real-economy emissions.

Fund investor cliques and flow sensitivity—evidence from China

Although fund investor cliques have received widespread attention, their motives have not been thoroughly explored. We use a sample of actively managed open-end public equity funds in China during 2006 - 2020 to construct fund investor cliques. We then empirically examine the effect of fund flow characteristics on fund investor cliques. The empirical results show that the tendency of fund investor to clique is more pronounced when fund flows are more sensitive to fund performance. We also construct Reliance on Public Information (RPI) indicator as an instrumental variable to address the endogeneity problem in the empirical process.

The role of financial covenants in pricing private investments in public equity

Our study examines the pricing of private placements for issuing firms subject to outstanding loan covenants. Using Private Investments in Public Equity (PIPE) deals from 2001 to 2018, we find that issuing firms restricted by loan covenants offer a discount of 3.9% larger than those without covenants. We corroborate the positive impact of financial covenants on discounts through channel tests that assess covenant violation history, covenant strictness, and the identities of lead PIPE investors. The increased probability of technical default and costly renegotiation in covenants potentially incentivizes borrowing firms to transition from the loan market to the PIPE market. To minimize endogeneity concerns, we use a matched sample, a Heckman selection model, and a two-stage least squares instrumental variable analysis, all of which present consistent results. Based on our findings, we conjecture that PIPE investors are concerned about the transfer of control rights to lenders and, as a result, demand deeper discounts in PIPE offerings.

REIT capital structure strategy in the aftermath of hurricanes

This paper studies the causal impacts of hurricanes on capital structure. The sample covers 181 US public equity Real Estate Investment Trusts (REITs) throughout 2011–2018, during which 8 catastrophic hurricanes made landfalls in the contiguous US. This study finds that a basis point (0.01%) increment in REIT sudden exposure to hurricanes leads to a negative liquidity shock of 15.3% in corporate cash. Such shock is immediately followed by a 26.4% increase in leverage, measured as total debt over total assets. The effects are temporary, lasting only one quarter during the shock. REIT reactions to hurricanes are consistent with the pecking order theory of capital structure. Overall, hurricane ramifications to REIT capital structure strategy can be as impactful as any distress event that alters corporate liquidity and ability to maintain its daily operation.

Shareholder litigation and short selling ahead of private equity placements

AbstractWe examine the impact of shareholder litigation on short selling ahead of private investments in public equity (PIPEs). We find that PIPE issuers that incurred securities class action lawsuits prior to the PIPE are shorted more heavily ahead of the PIPE issue. The case status at the PIPE date, the severity of the lawsuit, and the timing of the private placement after the litigation event also affect the extent of short selling activity ahead of PIPEs. Consistent with hedging incentives, the effects of prior shareholder litigation on short selling are more pronounced in PIPEs where lead investors are hedge funds and in traditional PIPEs.

A New Look on Cooperative Identity in the Light of the EU Prospectus Regulation and Blockchain-Based Public Equity Financing

Сooperative identity has distinct features which formed over a century ago. Legislation of many countries recognises the value of traditional cooperatives by providing them with special regulatory regimes, like tax exemptions. These exact features make cooperatives unattractive when it comes to competing with investor-owned companies for public equity capital. The article looks into the traditional cooperatives within the legal framework of raising public equity capital through the offer of blockchain-based tokens (crypto-assets). The analysis focuses on existing non-blockchain EU regulations, the EU Prospectus Regulation specifically. The study looks into the distinct features of the cooperative identity, analyses the specifics of prospectus regulations, and applies the criteria underlying the initial disclosure obligation when making a public offer to sell equity-based blockchain tokens by cooperatives. The article concludes that complying with the traditional cooperative identity allows entities to access public equity financing using crypto-assets without publishing a prospectus under the Prospectus Regulation. This conclusion is only a first step in analysing the cooperative identity changes when membership is offered in transferable blockchain tokens. Blockchain, cooperative principles, Prospectus, public equity, investment, cooperative rebates, ICOs, MiCA, securities, information asymmetry

An Empirical Analysis of Private Equity, Listed Private Equity and Public Equity

It is not a secret that the world of Private Equity is growing year by year, with an immense upwards trend and that the willingness of understanding how Private Equity as an alternative capital raising strategy can be used by companies which do not want to go public and get financed by Public Equity.The underlying paper investigates the world of Private Equity, Listed Private Equity and Public Equity. Regarding transparency of data, the comparability of Public Equity to Listed Private Equity provides way better results than comparing Public Equity to Private Equity.Due to the listing of the firms, the disclosure requirements need to be fulfilled. The GLPE Index illustrates and underlines the effectiveness of Listed Private Equity as a financing source. The GLPE Index contains 40 to 75 listed Private Equity firms which mostly invest Private Equity in firms that are not listed.However - The top ten constituents of this index show their diversification considering the companies they have invested in and their performance, the countries in which the Headquarter are located and the performance of these funds. One can see clearly that 2021 was an extra ordinary year for all of them. They achieved returns and performance better than indices like the MSCI World and S&P 500.

How Unique is VC’s American History?

VC: An American History, by Tom Nicholas, offers a compelling chronicle of the development of professional venture capital (VC) in the United States—from VC-like fore-bearers as diverse as eighteenth-century cotton manufacturing and nineteenth-century whaling up to the state of the modern VC market at the turn of the millennium. The book emphasizes America’s enduring advantage in VC as a consequence of these early developments and as a practical governance solution for investing in the long-tailed returns of risky new ventures. In this essay we discuss similar historical precedent and governance arrangements in the spice-trading voyages of the sixteenth- and seventeenth-century Dutch Republic, calling into question the uniqueness of early American VC ancestors. Moreover, far from being a distinguishing feature of early ventures, long-tailed returns exist even in public equities, suggesting that the VC governance structure is about more than the distribution of returns. We conclude that the reasons for American dominance of contemporary VC remain unclear. Picking up where the book leaves off, we summarize facts and trends in twenty-first-century VC. (JEL G24, M13, N20, O16, O31)

Speeding up risk capital allocation to deliver net-zero ambitions

Chris Greig is the Theodora D. ('78) and William H. Walton III ('74) Senior Research Scientist at the Andlinger Center for Energy and the Environment at Princeton University. His academic career follows 28 years as a senior executive in the energy and industrial sectors, developing large energy and industrial projects throughout the Asia-Pacific. His research focuses on the feasibility and implementation of large-scale energy transitions taking a systems perspective across energy systems analysis, business, social sciences, and policy. He was a principal investigator on Princeton's recent Net-Zero America study and co-leads similar efforts in Australia and Asia. David Keto is managing principal of SRI Group, a responsible investment consulting firm. Prior roles include chief operating officer for New Tower Trust, the bank trustee for the Multi-Employer Property Trust, a multi-billion-dollar socially responsible real estate fund. Prior to that, he served as chief operating officer for the AFL-CIO Investment Trust Corporation and as general counsel and chief of staff for the AFL-CIO Housing Investment Trust. He also served as undersecretary for the Massachusetts Executive Officer of Economic Affairs and as special counsel to the Boston Redevelopment Authority. He holds degrees from Princeton University and Yale Law School. Scott Hobart is chief investment officer at Mercator Partners, a sustainability-focused asset manager based in Princeton, New Jersey. Mercator invests across public equity markets globally with a focus on identifying sectors and business models that support the urgent need to decarbonize asset-heavy industries. The investment process at Mercator draws heavily on insights from academia and national laboratories. Benjamin Finch is an undergraduate senior in the Department of Electrical and Computer Engineering at Princeton University. Ryan Winkler is an undergraduate junior in the Department of Economics at Princeton University.