Private Equity as an Asset Class, 2nd Edition

About the Author.

Acknowledgements.

Introduction.

1 What is Private Equity?

What is Private Equity?

Fund investing versus direct investing.

Co-investment.

Terminology.

Different types of Private Equity investment.

Summary.

2. What are Private Equity Funds, and How do They Work?

Capital: Allocated, Committed, Drawn Down and Invested.

How do Private Equity Funds Work?

Structure.

Cash flow.

Investment.

Fundraising.

Private Equity Funds Distinguished from Other Fund Types.

Hedge funds.

Infrastructure.

Private (Equity) Real Estate.

A Note on International Issues.

Summary.

3. Private Equity Returns – The Basics.

Understanding the J-curve and Compound Returns.

Upper Quartile Figures.

Median Returns.

Average Returns.

Pooled Returns.

Using Vintage Year Returns for Benchmarking Purposes.

Time-weighted Returns.

Summary.

4 Private Equity Returns – Multiples and Muddles.

Multiples.

Distributed over paid in (DPI).

Paid in to committed capital (PICC).

Residual value to paid in (RVPI).

Total value to paid in (TVPI).

Use of multiples in industry research.

Muddles, Muggles and Markowitz.

Returns.

Risk.

Liquidity.

Summary.

5 Buyout.

Types of Buyout Transaction.

MBO.

MBI.

BIMBO.

LBO.

Take Private (P2P).

Roll-up.

Secondary Buyouts.

Other 'Buyout' Activity.

PIPEs.

How do Buyouts Work?

Characteristics of Buyout.

Established businesses.

Debt.

Earnings.

Size.

Control.

Barriers to entry.

Summary.

6 How to Analyse Buyouts.

Earnings.

EBIT.

EBITDA.

Earnings Growth.

Multiple.

Multiple increase (sometimes called multiple arbitrage).

Leverage.

Recapitalisation.

Timing.

Modelling and Analysing Buyout Funds.

Enterprise value.

Summary.

7 Buyout Returns.

US versus European Buyout.

Buyout skill bases.

Imperfect markets.

Earnings multiples.

Earnings growth.

Leverage.

Contribution of different drivers.

Fund size.

Summary.

8 Venture Capital.

What is Venture Capital?

Backing New Applications, Not New Technology.

Classifi cation by Sector.

IT.

Telecoms.

Life Science.

Classifi cation by Stage.

Seed stage.

Early stage.

Mid and late stages.

Summary.

9 How to Analyse Venture.

The Fundamentals (1) – Money Multiples.

The Fundamentals (2) – Valuation.

Valuation as an element of stated returns.

Differences in valuation approach between Europe and the US.

Variability of Venture valuations.

Pre-money and post-money valuations.

Share classes.

The Fundamentals (3) – Cost and Value.

IRRs and multiples.

Going in equity (GI%).

Percentage of the holding within the fund.

The Impact of Home Runs.

Summary.

10 Venture Returns.

US Outperformance versus Europe.

Money multiples drive IRRs.

Home runs and the golden circle.

Market conditions.

European Venture – Is it as Bad as it Seems?

Returns and Fund Size.

Venture returns by stage.

What of the Future?

Summary.

11. Growth and Development Capital.

The PLC and the BCG Growth Matrix.

Development Capital.

Target companies.

Money in deals.

Money out deals.

Objectives.

Growth Capital.

Target companies.

Objectives.

Growth capital and late-stage Venture.

Common Issues.

Minority protection.

Exit protection.

The Future.

Summary.

12. Secondary Private Equity Fund Investing.

Why do People Buy Secondaries?

Time and the J-curve.

Diversifi cation by time.

Diversifi cation by geography and sector.

Treasury and Portfolio Secondaries.

Why do People Sell Secondaries?

Change of strategy/leaving the asset class.

Overconcentration by time, sector or geography.

Unexpected need for cash.

Housekeeping.

Dissatisfaction with the GP.

Restrictions on Transfer.

Stapled primaries.

Secondary Methodology.

Tails.

Fees etc.

Secondary Buyouts - Warning.

Summary.

13. Due Diligence.

Buyout Funds.

Venture Funds.

Co-investors.

Cross-fund Investing.

Buyout Companies.

Venture Companies.

Funds of Funds.

Growth and Development Capital.

Monitoring Private Equity Funds.

The Changing Nature of Due Diligence.

Summary.

14. Planning Your Investment Programme.

Cash Flow Planning.

Allocated, Committed and Invested Capital.

Diversifi cation by Time.

Proper Commitment Levels.

Diversifi cation by Sector and Geography.

Total Return.

How to deal with uninvested capital.

Towards a New World of Private Equity Programmes?

Summary.

15. Trends and Issues.

Financial Crisis.

Credit.

Valuation.

Holding periods.

Secondaries.

Emerging Markets.

Concluding Thoughts.

Track record.

Returns.

Fee structures.

Private Equity at a Crossroads?

Summary.

Glossary of Private Equity Terms.

Index.