Private Equity 4.0 – Reinventing Value Creation
Reinventing Value Creation
Gebonden Engels 2015 9781118939734Samenvatting
Private equity is more economically significant than ever, as institutions hunt for high returns in a risky world. Private Equity 4.0 examines the role, workings and contribution of this important industry in a straightforward yet revealing manner.
Dr. Josh Lerner
Jacob H. Schiff Professor of Investment Banking Chair, Entrepreneurial Management Unit
Harvard Business School
A multi–perspective look at private equity′s inner workings
Private Equity 4.0 provides an insider perspective on the private equity industry, and analyzes the fundamental evolution of the private equity asset class over the past 30 years, from alternative to mainstream. The book provides insightful interviews of key industry figures, and case studies of some of the success stories in the industry. It also answers key questions related to strategy, fund manager selection, incentive mechanisms, performance comparison, red flags in prospectuses, and more.
Private Equity 4.0 offers guidance for the many stakeholders that could benefit from a more complete understanding of this special area of finance.
Understand the industry′s dominant business models
Discover how value is created and performance measured
Perform a deep dive into the ecosystem of professionals that make the industry hum, including the different incentive systems that support the industry′s players
Elaborate a clear set of guidelines to invest in the industry and deliver better performance
Written by a team of authors that combine academic and industry expertise to produce a well–rounded perspective, this book details the inner workings of private equity and gives readers the background they need to feel confident about committing to this asset class. Coverage includes a historical perspective on the business models of the three major waves of private equity leading to today′s 4.0 model, a detailed analysis of the industry today, as well as reflections on the future of private equity and prospective futures. It also provides readers with the analytical and financial tools to analyze a fund′s performance, with clear explanations of the mechanisms, organizations, and individuals that make the system work.
The authors demystify private equity by providing a balanced, but critical, review of its contributions and shortcomings and moving beyond the simplistic journalistic descriptions. Its ecosystem is complex and not recognizing that complexity leads to inappropriate judgments. Because of its assumed opacity and some historical deviant (and generally transient) practices, it has often been accused of evil intents, making it an ideal scapegoat in times of economic crisis, prodding leading politicians and regulators to intervene and demand changes in practices. Unfortunately, such actors were often responding to public calls for action rather than a thorough understanding of the factors at play in this complex interdependent system, doing often more harm than good in the process and depriving economies of one of their most dynamic and creative forces. Self–regulation has clearly shown its limits, but righteous political interventions even more so.
Private equity investment can be a valuable addition to many portfolios, but investors need a clear understanding of the forces at work before committing to this asset class. With detailed explanations and expert insights, Private Equity 4.0 is a comprehensive guide to the industry ways and means that enables the reader to capture its richness and sustainability.
Specificaties
Lezersrecensies
Inhoudsopgave
<p>About the authors xi</p>
<p>Professional acknowledgments xiii</p>
<p>Personal acknowledgments xv</p>
<p>Foreword xvii</p>
<p>Introduction xxi</p>
<p>Private equity at the crossroads xxi</p>
<p>An historical perspective to gain insights for the future xxi</p>
<p>Private equity: all about people xxiii</p>
<p>The best capitalism has to offer? The conceptual groundings xxiv</p>
<p>Empowering and incentivizing: partnering for mutual success xxiv</p>
<p>Focus, focus, focus xxv</p>
<p>Strategy is cheap; operationalizing is key xxv</p>
<p>Alignment brings cohesion xxvi</p>
<p>Flexibility as strategic value xxvi</p>
<p>Carrots and sticks: the value of discipline xxvi</p>
<p>Leverage at all levels xxvii</p>
<p>The cash flow paradox xxvii</p>
<p>The buy–and–sell approach: capitalism on speed xxviii</p>
<p>Believers, sceptics and cynics xxviii</p>
<p>1 Private equity: from alternative to mainstream asset class? 1</p>
<p>Moving into mainstream 3</p>
<p>A brief history 6</p>
<p>An increasingly global industry 8</p>
<p>Private equity in North America 10</p>
<p>Private equity in Europe 11</p>
<p>Private equity in Asia 12</p>
<p>Emerging private equity players 13</p>
<p>An industry in the limelight 18</p>
<p>2 Private equity as a business system 25</p>
<p>Setting the stage 27</p>
<p>The raison d être of private equity funds 27</p>
<p>Private equity s market segments 29</p>
<p>The fuel behind private equity: investors 37</p>
<p>Portfolio allocations by investors 39</p>
<p>The (apparent) madness of private equity fees 42</p>
<p>Management fee 43</p>
<p>Carried interest 43</p>
<p>General partner interest 46</p>
<p>Commitments versus investments 50</p>
<p>Distributions in cash, please! 51</p>
<p>Due diligence, leverage, focus and incentives 53</p>
<p>Superior information 54</p>
<p>Active ownership 54</p>
<p>Financial leverage 55</p>
<p>Alignment of interests 55</p>
<p>Mitigating possible confl icts of interest 56</p>
<p>Illiquidity and new ways to cope with it 58</p>
<p>Secondaries market 58</p>
<p>Publicly listed private equity vehicles 60</p>
<p>3 Value creation in private equity 69</p>
<p>The art of private equity 71</p>
<p>Sourcing deals 74</p>
<p>Creating value in private equity 78</p>
<p>Operational value 79</p>
<p>Exiting investments 95</p>
<p>The economic impact of private equity 96</p>
<p>4 Private equity performance 103</p>
<p>Performance metrics 106</p>
<p>Valuing realized and unrealized investments 108</p>
<p>Reporting fund performance 109</p>
<p>Membership and self–reporting biases 109</p>
<p>Performance by segments 112</p>
<p>Performance by fund size 113</p>
<p>The persistence effect 114</p>
<p>The timing effect 116</p>
<p>Comparison against benchmarks 117</p>
<p>Correlation to other asset classes 121</p>
<p>5 The main characters in private equity 125</p>
<p>Size matters: fund sizes, deal sizes and other dimension issues! 127</p>
<p>Global alternative asset managers 132</p>
<p>Example: The Carlyle Group 133</p>
<p>Example: Bain Capital 138</p>
<p>Regional, domestic and multi–country funds 142</p>
<p>Example: EQT Partners 143</p>
<p>Mid–market funds 146</p>
<p>Example: H.I.G. Capital 148</p>
<p>Venture capital funds 152</p>
<p>Example: TVM Capital 154</p>
<p>Distressed private equity 157</p>
<p>Example: Cerberus Capital Management LP 159</p>
<p>Secondary funds 162</p>
<p>Example: Coller Capital 163</p>
<p>Funds–of–funds 165</p>
<p>Example: Pantheon 166</p>
<p>Example: AlpInvest Partners 169</p>
<p>Institutional limited partners 171</p>
<p>Example: CalPERS (California Public Employees Retirement System) 171</p>
<p>6 The supporting cast 173</p>
<p>London as European centre of gravity 176</p>
<p>The private equity ecosystem: follow the fees 177</p>
<p>Investment banks 178</p>
<p>M&A advisory fees 179</p>
<p>Arrangement fees 180</p>
<p>Securitization fees, or the price of turning frogs into princes 180</p>
<p>Fund management fees, or how to compete with your best clients 182</p>
<p>Lending banks 183</p>
<p>Accountancy firms 184</p>
<p>Law firms 185</p>
<p>Due diligence specialist providers 186</p>
<p>Strategy consultants 187</p>
<p>Placement agents 189</p>
<p>Fund administrators 190</p>
<p>Recruitment consultants 191</p>
<p>Public relations agencies 192</p>
<p>7 Investing in a fund 195</p>
<p>The private equity game 197</p>
<p>The decision to invest 198</p>
<p>Choice of investment vehicle 203</p>
<p>Direct fund investments 204</p>
<p>Indirect fund investments 204</p>
<p>Diversification in a rich marketplace 209</p>
<p>Stages of investment 210</p>
<p>Geographic focus 210</p>
<p>Sector and size of investments 210</p>
<p>Strategic approach 210</p>
<p>Types of private equity firms 211</p>
<p>Timing 211</p>
<p>The pitch 212</p>
<p>Manager selection 214</p>
<p>Due diligence 216</p>
<p>Terms, conditions and fee structures 221</p>
<p>Subscription to a fund 228</p>
<p>Capital calls 228</p>
<p>Monitoring 229</p>
<p>Distributions 230</p>
<p>Reporting 232</p>
<p>Fund liquidation 233</p>
<p>8 The future of private equity 235</p>
<p>Reports of private equity s death were highly premature 237</p>
<p>Private equity in a changing world 239</p>
<p>Conclusion 244</p>
<p>Index 247</p>
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