Exposed to the J-Curve: understanding and managing private equity fund investments
Saved in:
| Main Authors: | , |
|---|---|
| Format: | Book |
| Language: | English |
| Published: |
London
Euromoney Books
2005
|
| Subjects: | |
| Online Access: | Inhaltsverzeichnis |
| Physical Description: | XVII, 181 S. Ill., graph. Darst. |
| ISBN: | 1843741490 9781843741497 |
Staff View
MARC
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| 100 | 1 | |a Grabenwarter, Ulrich |e Verfasser |4 aut | |
| 245 | 1 | 0 | |a Exposed to the J-Curve |b understanding and managing private equity fund investments |c Ulrich Grabenwarter and Tom Weidig |
| 246 | 1 | 3 | |a Understanding and managing private equity fund investments |
| 264 | 1 | |a London |b Euromoney Books |c 2005 | |
| 300 | |a XVII, 181 S. |b Ill., graph. Darst. | ||
| 336 | |b txt |2 rdacontent | ||
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| 650 | 4 | |a Private equity | |
| 650 | 4 | |a Venture capital | |
| 650 | 4 | |a Investments | |
| 655 | 7 | |0 (DE-588)4006432-3 |a Bibliografie |2 gnd-content | |
| 700 | 1 | |a Weidig, Tom |e Verfasser |4 aut | |
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Record in the Search Index
| _version_ | 1804149265859084288 |
|---|---|
| adam_text | Contents
About the authors xii
Preface xiii
Introduction xv
Part I Private equity fund investments: an alternative
asset class l
Chapter 1: The private equity fund as the intermediary in an
expert market 3
The private equity fund as the intermediary 3
Investing in private equity funds 3
Risk levels of private equity investments 4
Direct investments 5
Private equity funds 5
Private equity funds of funds 5
Securitisation and structured products 6
Publicly traded private equity 6
Chapter 2: Why invest in private equity funds? 7
Who should invest in private equity funds? 7
Private equity as part of an alternative investment strategy 7
Institutional investors seek exposure to alternative investments 7
The attractiveness of alternative investments 8
Reasons to invest in private equity funds 8
Investing in private equity - a critical look 9
Challenging the reasons to invest in private equity funds 9
Disadvantages of investing in private equity funds 10
Chapter 3: The private equity fund industry 12
Origin of the private equity fund industry 12
The formalised private equity industry takes off in the 1970s 12
The size of the private equity industry 12
Market prospects 13
The main markets 14
The US market 14
The European markets 14
Asia Pacific and other emerging markets 15
v
CONTENTS
The main private equity players 16
The fund manager or general partner (GP) 16
The fund investor or limited partner (LP) 16
Prospects
Chapter 4: The investment focus of private equity funds 18
The sub-segments of private equity - an overview 18
Characteristics and risk of venture capital and late-stage PE segments 19
Risk-return comparison 20
Chapter 5: Performance of private equity funds 21
Sources of return for private equity funds 21
Performance measurement in private equity 21
Finding a meaningful performance measure for private equity funds 21
The multiple 22
The internal rate of return (IRR) 23
Why public market performance measures fail 23
The public market equivalent (PME) 24
Problems with the PME 24
Vintage year-weighted performance? 25
Leaving out young funds due to the J-curve 25
The risk (or uncertainty in returns) of private equity funds 26
The public market concept of risk fails 26
Using the standard deviation as risk measure 26
The bias of the standard deviation as risk measure 27
Empirical studies of risk-return of private equity funds 27
Chapter 6: Asset allocation to and within private equity 32
Correlation between private equity and other asset classes 32
Why is correlation important? 32
What are the problems when determining correlation? 32
How strongly correlated is private equity to public indices? 33
Asset allocation to private equity 34
Standard asset allocation and its problems 34
How much capital to allocate to private equity funds? 34
Correlation between private equity funds of different investment foci 34
Asset allocation within private equity 35
Investing in a broad range of funds across several vintage years 35
Implementing the asset allocation goal 36
Part II Being a private equity fund investor 37
Chapter 7: Evaluating an investment opportunity 39
The set-up of a private equity fund 40
Evaluating an investment opportunity from a limited partner
perspective 41
vi
; CONTENTS
!
Private equity - a people s business 41
Business ethics in private equity 41
j Professionalism - the backbone of the industry 42
Evaluating the market opportunity . 42
The factors involved in evaluation 43
! Market opportunities due to political or macroeconomic change 46
! Generalist funds versus specialist funds 46
f Evaluating the quality of a private equity fund s management team 47
Assessing a management team s track record 48
Evaluating the fund management individuals 52
Assessing the deal flow of a team 54
First-time teams versus experienced teams 55
What is the better choice? 55
Evaluating first-time teams 56
Chapter 8: Assessing terms and conditions - what to watch out for 57
Management fee structures 57
What does it cover? 57
Budget-based assessment of management fee levels 58
Step-down structures 58
Scaling fee levels to the fund size 58
Other partnership expenses 59
Broken deal expense 59
Set-up cost 59
Fee offset 60
Operating costs and capital invested 60
Investment periods and fund duration 60
Equalisation premia 61
Hurdle return - does it matter? 61
Catch-up mechanism 62
Two concepts 62
Alignment of interest and the sharing of profits 62
Carry distribution based on repayment of full contributed capital 63
Protection for limited partners in the case of overdistributions 64
Carry distribution based on repayment of full committed capital
(full-fund-back concept) 65
Chapter 9: The legal documentation - how to protect your investment 68
The legal structure 68
Limited liability for limited partners 68
Tax transparency 69
Regulatory constraints 69
Cost efficiency 69
Creating an industry standard 69
Protective clauses 70
Key-man clauses 70
vii
I
CONTENTS
Removal clauses for cause and without cause 71
Defaulting investors 76
Chapter 10: Avoiding or managing conflict of interest 78
Conflicts of interest within the scope of a general partner 78
Exclusivity clauses 79
Overlapping investment activities 79
Conflicts of interest involving limited partners 81
Best market practice corporate governance 82
Limited partners involvement in the management of the fund 82
Limited partners place in the corporate governance of a fund 83
Chapter 11: Investment monitoring and crisis management 84
Warning signs in monitoring a fund investment 84
Unusually slow or fast investment pace 84
Quality of reporting 85
General partner s transparency on valuation 85
Lost investments 86
Reserve policy in early-stage funds 86
Stability of the management team 86
Decreasing commitment of co-investors 86
What if everything goes wrong? - How to react in a crisis 87
Part III Managing a portfolio of private equity fund investments 89
Chapter 12: The challenges of portfolio and risk management in
private equity 91
Goals and tasks of portfolio management in private equity 91
The portfolio manager s goals 91
The portfolio manager s tasks 92
Identifying and reducing the risks of private equity fund investments 93
Undiversifiable risks 93
Diversifiable risks 94
Reducing diversifiable risks 96
Quantitative risk management in private equity 97
Reluctance towards the use of quantitative risk management
practices 97
Trend towards more quantitative risk management 98
Applying risk management techniques to private equity 99
Implementation challenges 99
Challenges to modelling 99
Active portfolio management is difficult 99
Chapter 13: Information for risk and portfolio management 101
The information deficiency in private equity 101
Sharing of information and the agency problem 101
viii
CONTENTS
Pressure to disclose 101
Lack of information exchange standards 102
, The demand for information exchange standards 102
Developing reporting and valuation guidelines 103
Overcoming the information deficiency 104
The importance of information management systems 104
l The quality of information 104
Which information to trust? 105
Information from own funds 105
1 Information from personal networks 105
Information from private equity publications 106
Information from external sources 106
1 Private equity databases 106
Can private equity databases overcome the information deficiency? 106
VentureXpert (from Thomson Venture Economics) 107
Cambridge Associates 108
Venture One 108
Fund investors portfolios 108
Chapter 14: Monitoring a portfolio 110
Portfolio measures 110
The importance and type of portfolio measures 110
Measures at portfolio level 110
Measures at fund level 112
Measures at company level 112
Monitoring diversification 112
Monitoring the value of the portfolio 114
The importance of valuation in private equity 114
Valuation methods for companies 114
Special considerations when valuing portfolio companies in
private equity 115
How fund managers compute the NAV 116
The nature of the private equity NAV 116
Monitoring performance using a benchmark 117
Benchmarking the fund management team to its peer group 117
Do too many teams claim to be top quartile? 118
Is past performance a good indicator of future performance? 119
Chapter 15: Forecasting the future portfolio 120
Forecasting the distribution of future cash flows 120
The need for cash flow modelling 120
Important issues on the use of cash flow models for forecasting 121
Monitoring risk numbers 121
Forecasting the performance of the portfolio 122
Using the interim IRR 122
Improving the forecasting power of the interim IRR 122
ix
Chapter 16: Steering the portfolio 124
General issues 124
Liquidity reserves 124
Overcommitment 125
Diversification 126
Chapter 17: Advanced cash flow modelling 127
Cash flow modelling 127
The importance to fund investors 127
Public disclosure 127
The challenges 128
High model risk 128
Cash flow patterns as a guide to fund investors 129
The pattern of fund cash flows 129
Studies on historical patterns 130
Different types of cash flow models 131
Models of a fund as a portfolio of direct investments 132
Model based on manager cash flow estimates 132
Model based on company grading 133
Non-probabilistic models at fund level 133
Simple approach 133
Takahashi and Alexander s model 134
Weidig s interim IRR model 134
Probabilistic models at fund level 135
Fitch Ratings model 135
Standard Poor s model 135
Weidig internal age model 136
Partners Group model 136
Malherbe model 137
Kaserer and Diller model proposal 137
Part IV Alternative private equity investment vehicles 141
Chapter 18: Helping institutional investors to access private equity 143
The role of the alternative investments 143
Outsourcing 144
Exiting private equity 144
Chapter 19: Funds of funds 146
Advantages 146
Outsourcing 146
Larger networks 146
Accessibility 146
Increased diversification 147
Deal flow availability 147
Greater bargaining power 147
x
? CONTENTS
: Disadvantages 147
¦ Additional layer of fees 147
¦¦ Less control 148
Illiquidity 148
Hard to find perfect match 148
Overcrowded market 148
; Selecting a fund of funds management team 148
Ability to access the best fund management teams 148
Investment strategies as differentiating factor 149
Other selection criteria 150
The risk profile of a fund of funds 151
Chapter 20: Secondary transactions 152
Motivation and considerations on the sell-side 152
Reasons to sell 152
Disadvantages to selling 153
Motivation and considerations on the buy-side 153
Advantages 153
Disadvantages 154
Outsourcing the investment into secondary transactions 155
Chapter 21: Securitisation and structured instruments in private equity 156
Securitisation of private equity funds 156
Benefits 156
Disadvantages 157
Prospects 158
Structured instruments and hedge funds 158
Other products: publicly traded private equity 159
Chapter 22: Conclusion 161
Glossary 163
Bibliography and further reading 178
xi
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| isbn | 1843741490 9781843741497 |
| language | English |
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| physical | XVII, 181 S. Ill., graph. Darst. |
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| spelling | Grabenwarter, Ulrich Verfasser aut Exposed to the J-Curve understanding and managing private equity fund investments Ulrich Grabenwarter and Tom Weidig Understanding and managing private equity fund investments London Euromoney Books 2005 XVII, 181 S. Ill., graph. Darst. txt rdacontent n rdamedia nc rdacarrier Private equity Venture capital Investments (DE-588)4006432-3 Bibliografie gnd-content Weidig, Tom Verfasser aut HBZ Datenaustausch application/pdf http://bvbr.bib-bvb.de:8991/F?func=service&doc_library=BVB01&local_base=BVB01&doc_number=025119332&sequence=000002&line_number=0001&func_code=DB_RECORDS&service_type=MEDIA Inhaltsverzeichnis |
| spellingShingle | Grabenwarter, Ulrich Weidig, Tom Exposed to the J-Curve understanding and managing private equity fund investments Private equity Venture capital Investments |
| subject_GND | (DE-588)4006432-3 |
| title | Exposed to the J-Curve understanding and managing private equity fund investments |
| title_alt | Understanding and managing private equity fund investments |
| title_auth | Exposed to the J-Curve understanding and managing private equity fund investments |
| title_exact_search | Exposed to the J-Curve understanding and managing private equity fund investments |
| title_full | Exposed to the J-Curve understanding and managing private equity fund investments Ulrich Grabenwarter and Tom Weidig |
| title_fullStr | Exposed to the J-Curve understanding and managing private equity fund investments Ulrich Grabenwarter and Tom Weidig |
| title_full_unstemmed | Exposed to the J-Curve understanding and managing private equity fund investments Ulrich Grabenwarter and Tom Weidig |
| title_short | Exposed to the J-Curve |
| title_sort | exposed to the j curve understanding and managing private equity fund investments |
| title_sub | understanding and managing private equity fund investments |
| topic | Private equity Venture capital Investments |
| topic_facet | Private equity Venture capital Investments Bibliografie |
| url | http://bvbr.bib-bvb.de:8991/F?func=service&doc_library=BVB01&local_base=BVB01&doc_number=025119332&sequence=000002&line_number=0001&func_code=DB_RECORDS&service_type=MEDIA |
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