Private Equity Industry Video Update | THL Partners
Following yesteday’s look at the “new normal” of private equity, here is a good video update on the private equity industry from a partner at a major private equity firm. The economic recovery is still very shaky and private equity firms and investors are having to decide when is the right time to get back in the market again. Scott Sperling of Thomas H. Lee Partners, one of Boston’s largest private equity firms, says his firm is aggressively looking for new opportunities especially in the services and business outsourcing sector as well as retail but that this recovery is “fragile.” He also mentions the gap in valuation between what the company is valued at in the public market and what private equity firms think it is actually worth. E-mail subscribers can watch the video here.
Companies are still valued higher than private equity firms are willing to pay, and in order to pay 7-9 times cash flow Sperling says he must be certain that the economy is stable. Part of this may be a hope on the buyout side that these companies would be willing to sell for less than they are worth due to economic pressure. Sperling closes with the negotiations between the FDIC and private equity firms and the recent regulation, advocating strongly for lowering the reserve requirement so that private equity firms and their companies are not competitively disadvantaged.
With the impending regulation hanging over the private equity industry, it’s hard to tell whether the industry will expand or contract. By requiring firms to register with SEC, or similar measures intended to increase transparency, it’s possible that investors may be drawn to the asset class because it would have more accountability to limited partners. On the other hand, greater regulation could limit private equity firms from generating the same kind of returns that investors have enjoyed previously. The following video examines these issues and the current state of private equity.
Advice for Improving Private Equity Investor Relations
It’s often the case that General Partners are at one of two sides of the Investor Relations spectrum. Either the GP wishes to improve their Limited Partner relations, but doesn’t know how to go about revamping this area; or the GP is damaging their limited partner relations and totally oblivious about it. So, even if you believe that your team is satisfying your limited partners, it’s worth looking reviewing. Fortunately, Denise Palmieri at peHUB specializes in investor relations and offers her seven tips for improving limited partner relations. I’ve added my own thoughts on the advice:
1. Start Over: Reexamine the way you communicate with your Limited Partners. Ask yourself: “How do you communicate with them? Do you actually talk with them or is it simply a reporting function and you only actually speak with them when you need their renewed investment for the next fund?” Limited Partners will respect the fact that you are taking steps to improve your relationship so don’t be afraid to directly ask them what you can do to strengthen their trust in you. Take that feedback and work to address it, you will do further damage to the relationship if they tell you what you can do and you ignore it.
2. Commit Your Time and Effort: If you are serious about limited partner relations then you have to incorporate this area into your routine by setting aside regular time to build the relationships. Palmieri suggest going beyond required reporting and the annual meeting, and keep up informal communication with your investors. Limited Partners know what you are required to do and by doing more than that minimum you are showing that you care about them and their input. Emphasize the idea of a partnership–after all, that is what you and your investors are–and by keeping them involved in the decisions you promote this relationship and removes some of the shroud from your operations. You can also benefit from hearing the LPs perspective, and some LPs may contribute their network of contacts and experience to the partnership.
3. Be Honest and Forthright. As Palmieri puts it, “Don’t play hide the ball or sugarcoat bad news.” GPs can do irreparable damage to their Limited Partners relationships by being dishonest or covering up failures. Limited Partners may look past poor performance but lying about it can expand what would have been a minor setback. Lesson: be honest and direct with your Limited Partners.
4. Offer Sincere Appreciation. Any top performing fund can use a little humbling and nothing can take you down a peg as losing a valuable client because you put other aspects above LP relations. Even if your fund is bringing great returns, you should never lose sight of who gave you the money in the first place. Your fund may be doing great now, but that might not be the case next year and you need a strong relationship to keep those Limited Partners with you through thick and thin. So show your appreciation for their investment, loyalty and advice.
5. The Grass is not Greener. Although you may have other Limited Partners that you can turn to, it’s often easier to work toward satisfying your existing investors and building that relationship. It’s important to balance finding new investors for your next venture and keeping your current ones happy. Limited Partners won’t appeciate you neglecting their current committment because you’re working on impressing the next group of investors.
6. The Buck Stops Here. There are a lot of factors that combine to produce poor returns to investors, but inevitably a share of that responsibility falls on you. Palmieri notes, “Humility and self-reflection goes a very long way in an industry filled with uber-confidence and differentiates you from the blame-layers.” Limited Partners should know that there is never a fund that will always produce high returns every quarter. Simply explain what happened, say you’re sorry and try not to make excuses.
7. Flexibility is Survival. When negotiating terms with your investors, put yourself in your Limited Partners’ shoes. Try imagining your reaction if a prospective portfolio company asked for those terms. Really, your role as an investor in portfolio companies is similar to your Limited Partners to your fund. “Flexible relationships with mutually aligned interests are the ones that survive in all conditions.”
Going the extra mile with your clients can really make a difference in retaining your investors. Taking concrete steps to improve your Limited Partner relations is crucial in a time when investor confidence in General Partners is so weak.
Our team is collecting feedback on what specific databases and directories of investors would be most useful to Hedge Funds, Long Only Managers, Commodity Trading Advisor funds, Real Estate Funds and Private Equity funds. To date we have compiled the following list, have we missed a type of investor you would like to obtain contact details on?
Pension Funds
Endowment Funds
Foundations
Single and Multi-Family Offices
Wealth Management Firms and Financial Planners
Hedge Funds
Fund of Hedge Funds
Private Equity Funds
Real Estate Investment Trusts (REITS)
Prime Brokerage Firms (for capital introduction contacts)
Third Party Marketing Firms
High Net Worth (HNW) Individuals
Ultra High Net Worth (UHNW) Individuals
Seed Capital Providers
Sovereign Wealth Funds
Angel Investors
Venture Capitalists
Film & Movie Funding Groups
Litigation Funding Sources
What are we missing? What do you need for your business to grow?
Tags: Excel Database of investors, excel directory of investors, investor database, online investor database, real estate investors, hedge fund investors, private equity investors, CTA investors
Private Equity Institutional Investors Willing to Wait
Private equity investors are willing to wait at least a year or two before selling, according to the latest investor survey.
Preqin, Inc. has conducted a survey of private equity investors and found that most are willing to wait at least a year before turning to the secondary market. Of the 568 private equity institutional investors that were surveyed, 11% said they wanted to sell their stake on the secondary market. Of those who are looking to sell on the secondary market, just 10% plan to sell immediately; 43% want to sell within the next 12 months; and 47% expect to sell in 12 to 24 months.
Private equity investors–especially the larger partners like pension and endowment funds– typically commit for the life of the fund. But the economic recession and plummeting asset values is hurting the investors’ portfolios and forcing some investors to sell their interests in the fund–even for a much lower price.
Investors considering selling their shares are “being put off” by the big gap between asking prices and net asset values which has led many potential buys and sellers from making a deal on the secondary market.
Preqin commented, “Only those with an extremely distressed portfolio will be willing to exit investments at today’s prices.”
The latest report from PitchBook Data covers the first quarter of 2009. It reveals that although fundraising has remained strong, private equity investors are still hesitant to invest any of that capital. PitchBook’s CEO, John Gabbert, sums up the findings best, “…despite having raised record amounts of capital over the past two years, private equity investors are still waiting on the sidelines for the current economic conditions to stabilize, the credit markets to return, and valuations to adjust before they really get back to doing new deals.”
The key statistics for private equity Q1 2009 are:
Only 188 investments were completed in the first quarter, while 440 were in Q3 and 279 in Q4 of 2008. Compared to Q1 2008, investment activity dropped by 68%, with a 70% fall in buyouts.
The credit crunch has cut the number of deals over $250 million to just 12% of Q1 deals. Instead, private equity investors are turning to minority investments and acquisitions of middle-market companies. This led the median deal amount to drop from $61 million in 2008 to $25 million this quarter.
The amount that private equity firms invested during this quarter reached a new low of only $12.8 billion, compared to $52.7 billion invested during the same period last year–and the remarkable $177 billion invested in Q4 of 2007.
Breaking it up by industry: In Q1 2009, 53 investments were completed in the Consumer Products and Services industry. The Business Products and Services industry followed at second with 46 transactions and then Healthcare with 28. The Energy industry felt the biggest drop in investment activity, with a more than 60% drop from last quarter at just 9 completed investments.
Following the banking crisis and Bernie Madoff’s large-scale fraud, investors have reason to be anxious. A survey by Quinnipiac University and Greenwich Roundtable sheds some light on investors’ attitudes.
The latest survey reveals that investors are less confident in alternative investments and the regulatory agencies. According to Steve McMenamin, executive director at the Greenwich Roundtable, “Leverage, liquidity, and lack of confidence are still keeping the sophisticated investor on the sidelines. We have never seen so many rational, cool-headed limited partners refrain from making future commitments to alternatives.”
Quinnipiac University and Greenwich Roundtable interviewed almost one hundred institutional and private investors at the beginning of 2009 to find the following results:
Asset Allocation and Market Outlook
Over the past quarter, more than one third of participants signaled that they had lowered their allocations to alternative investments while 54 percent of participants are keeping their allocations constant.
Close to 50 percent of respondents believed that asset prices will need to stabilize for a period of six months to a year before investors return to the markets.
Thirty percent of managers felt it will take a year or longer for market conditions to improve.
Gates
One third of participants said that between 10 percent and 40 percent of managers are raising gates or suspending redemptions.
Close to one-quarter of managers indicated dissatisfaction with current fund gate structure.
About 10 percent of investors felt that gates were being abused.
Madoff
Approximately 45 percent of members felt that better oversight by the SEC could have prevented the fraud.
More than 28 percent of respondents believed that any due diligence should have raised enough red flags to preclude investing.
Twenty-two percent of investors said that verification by auditors could have prevented the Madoff scandal.
Regulatory Agencies
More than 72 percent of members voiced a negative view of the SEC.
Ninety-seven percent of respondents believed the rating agencies as ineffective.
Close to 50 percent of investors had a positive view of the Federal Deposit Insurance Corporation.
About 47 percent of participants had a positive view of the Federal Reserve Board.
Private Equity Investors Turn to Secondaries Market
Generally, the secondary market for private equity is a market for the buying and selling of capital commitments to private equity funds by limited partners. The secondaries market has seen a large boom recently as many private equity investors are selling their investment commitments at considerably lower prices than the estimated value. The financial crisis and low performance of many private equity funds has led to this major push to ‘dump’ private equity investments even at a short term loss because the investors believe that it could get worse or cannot afford to remain committed to the fund as long as they are obligated. As the private equity secondary market becomes more and more popular, it’s important to have an understanding of what the secondaries market for private equity is.
By definition, private equity investment is different from the public investment markets where anyone can purchase shares of publicly traded companies. The private equity secondaries market is a way for private equity investors to exchange pre-existing investor commitments, similar to public exchange markets. A big difference though is that the private equity secondaries market is involves trading illiquid assets of long-term commitments to private equity funds.
The emphasis of these commitments is long-term because limited partners typically commit to private equity funds for at least 5 years and as long as 10 years for some fund. The reason is mostly that private equity funds seek to maximize profits of portfolio companies by restructuring and reducing the areas that cut into profits. To be successful, private equity firms prefer a longer time period to make the changes and for good reason.
By having a longer time frame to carry out the adjustments, private equity firms are able to find what is best for the company’s success rather than worrying over producing near-immediate returns to investors. This is also a concern of private equity for limited partners because they attach themselves to the fund for such a long time period, during which various problems could occur within the investment or beyond (such as the current financial crisis) which causes the investor to want to cash out early.
This is where the secondary market for private equity proves useful to investors who want to exit their longterm investment. Especially in times of turmoil, private equity investors may want out and in this event activities in the secondaries market surge. A great example of this is the aftermath of the Dot-Com crash where many private equity investors, especially those in venture capital funds, scrambled to sell off their investments that were rapidly sinking in value. During the time period of the Dot-Com bubble’s burst and the subsequent retreat by limited partners, the volume of transactions in the secondaries market rose from an estimated 2-3% to 5%. This led to a massive influx of undervalued investments, a large amount from tech-focused venture capital funds, and after a couple years the private equity secondaries market was more reasonably priced to the actual value. This may change again, however, as many nervous or hurt private equity investors are selling off investment commitments seemingly at a much lower price than the actual value, similar to the aftermath of the Dot-Com collapse.
Types of Transactions on the Private Equity Secondaries Market
Sale of Limited Partnership Interests: The most common transaction on the private equity secondaries market is the sale of limited partnership interests. Nearly all private equity funds (mezzanine fund, venture capital fund, angel investor fund etc) can be sold on the secondaries market and many investors use this to sell capital commitments to funds to other investors hoping to benefit from what they think is a undervalued investment. There are several variations on the basic sale of a limited partnership interest: a structured joint venture is a typically more complicated exchange where the buyer and seller negotiate terms that suit both parties. Securitization is an option for investors that want some liquid assets by investing its limited partner interests into a new vehicle, often a collatoralized fund obligation which issues notes or other liquid assets to the investor in return. A stapled transaction is a negotiated agreement when a general partner is raising another fund which ties the limited partner’s current fund investment to the new fund.
Sale of Direct Interests: This is different from the sale of limited partnership interests because it trades a direct investment in operating companies rather than in an investment fund. A secondary direct transaction is the sale of a captive portfolio of direct investments that must be either actively managed by the buyer or the buyer is supposed to arrange for a manager. Synthetic secondary transaction occurs when a secondary investor purchases a limited partnership holding a portfolio of direct investments. A tail-end transaction deals with the interest in a private equity investment that is nearing or has passed its expected life.
The secondaries market is of special importance as private equity investors look to the private equity secondaries market as an exit for their declining investment or to avoid expected declines.
A private equity firm offers a private placement memorandum to potential investors. The document explains an investment opportunity to potential limited partners, and the firm hopes they will be interested enough to invest capital in the investment.
Private equity firms usually include in the private placement memorandum a wide range of information that a limited partner would like to know when considering the investment. This includes summary terms and conditions proposed by the firm that a limited partner may negotiate if the LP decides to invest. In public capital investment offerings, the Securities and Exchange Commission regulates the document, but a private placement memorandum is not regulated and therefore the material and specifics provided to the limited partners may vary by firm. This article will cover what is most often included in a private placement memorandum, but private equity firms may choose to exclude any of these sections or add one that is not present.
The private placement memorandum is a document for private equity firms hoping to attract investors, and limited partners rely on the PPM to make their decision based on the information presented in it. Here are some general sections of the private placement memorandum:
Executive Summary: Some information usually included here would be the size of the fund, expected close date, and the management team’s experience in past funds. Additionally this section includes a brief description of the General Partner, the investment strategies used, and the opportunities and challenges in the current market.
Firm and Fund Investment Strategies: This is more or less self-explanatory but what you want to present is the firm’s past performance and history; how it has succeeded and what strategies were used. How the firm’s advantages and resources will succeed in the specified market. This section is a detailed overview of the fund’s investment strategy discussing the geographical focus of the fund, stage and relevant factors in its market. This is also an opportunity for the General Partner to present a thorough explanation investment strategy, process, deal sourcing and exit strategy.
Investment Professionals and Committee: This section presents the investment professionals involved in the new fund and explains their role. An especially important detail here is the history and experience of the investment professionals. Principal investors’ records are often included here with current board positions held in portfolio companies of the firm’s past funds. This is important information for the potential Limited Partners to know as it gives them an idea of the firm’s degree of involvement in portfolio companies and the individual partner’s ability to manage a new fund. Second in this section, firms often provide information on the Advisory Board or Investment Committee. This section varies by different firms but often larger Limited Partners will hold seats on the Advisory Board which is of particular importance in for prospective LP’s. This shows the details of the Advisory Board’s members, scheduled meetings, as well as valuation methodology and important factors when considering new investments.
Investment Performance Record: This section varies by firm because of different sizes and especially the difference between how long a firm has been established. Generally, firms use a table format to present the fund’s investment track record. This table usually includes past fund sizes and IRR performances of the funds (typically stated in terms of gross returns rather than individual LP’s net returns over fees).
General Partners and Limited Partners Terms and Agreements: This is where the firm gives its initial proposal of terms and agreements between the General Partner and the Limited Partners. Most importantly, the management fee, General Partner’s commitment the fund, distribution of the capital call schedules and the fund’s cooperative investment policy. Of interest to the investors is the percentage of profits that the General Partner takes, known as “carry”.
Legal and Tax Concerns: Tax treatment varies by whether the investor is U.S. based or non-U.S. based, and this section will briefly address different tax treatments and how it effects the Limited Partners.
Fund-related Investment Risks: This sectiontypically covers three areas of investment risk: business, management and fund risk. Business concerns would address concerns over the investment’s industry and risks inherent to the industry and possible uncertainty in the business environment. The management concerns are usually relationships to other entities, possibly a parent company. The fund-related risks may include cross-fund investments, principal’s co-investment activities or investments in public equities.
Accounting and Reporting: Included in this section is an explanation of the allocation of returns and losses and accounting for stock options. This section gives a schedule for audited and non-audited financial statements that are delivered by the General Partner. This gives Limited Partners an idea of the valuation of their investment and a way for keeping track of their capital commitment.
Again, this is a general overview of the typical sections of a private placement memorandum which may be subject to change by private equity firm, as it is not regulated by the SEC. In the future I will provide an article on the important factors that Limited Partners consider in a private placement memorandum.
The World Economic Forum has released a report based on data gathered from private equity activity in 21,000 firms from 1970 to 2007. This private equity report is nearly 200 pages and provides an extensive overview of how private equity has changed over recent decades. While it’s difficult to summarize such a large report, it does provide the key findings. Today, I am mostly focusing on the important findings in buyout activity (LBOs especially), private equity trends and exit strategies:
WEF Private Equity Report 2008
Private equity activity has dramatically increased over recent years. Almost 40% of private equity activity occurred from January 1, 2004, of the 37 years included in the study. The total value of firms acquired through leveraged buyouts is estimated in the study to be about $3.6 trillion, and $2.7 trillion of those transactions occurred between 2001 and 2007.
While a lot of media and public scrutiny centers around the public-to-private transactions, this activity only accounts for 6.7% of total transactions. Instead, the majority of transactions involve acquiring private companies and corporate divisions. (I wonder if private equity will use this to combat negative attention toward private equity over public-to-private buyouts?)
Leveraged buyout activity takes place predominantly in Western Europe and the United States, with only 9% of the total value of global LBOs happening outside these areas. However, there is an increasing amount of private equity activity taking place beyond Western Europe and the U.S. as other regions warm up to the private equity industry.
Research into private equity exit strategies revealed that 39% of exits are through trade sales to another corporation, making it the most common exit strategy. Following with 24% was exits through secondary buyouts and only 13% of private equity investments took the exit route of an Initial Public Offering.
Private equity investors seem to favor long term investments with 58% of private equity investments’ exits occurring after 5 years from the initial transaction. The last few years have seen a decline from “quick flips” (exits after only 2 years or less from the initial transaction) from the already low 12% of private equity deals. I would not be surprised if the bias toward long term investments increases even more in the next couple years as investors are drawn toward more stable investments amid the financial instability.
Another key finding was the big increase in companies backed by- and operating under private equity ownership. The number of firms entering LBO status has outpaced the number leaving LBO status so a steady margin has formed; 14,000 companies were held in LBO ownership as of 2007, compared to just 5,000 in 2000 and 2,000 in the mid-1990s. Also, the length of time that these companies are held in LBO status has increased.
These are only some of the more noteworthy findings in the private equity report, if you’re interested in viewing the whole 189 page report click here: the full private equity report from WEF
Investing in a private equity fund has a lot of advantages compared to other investment areas, here are just five advantages of private equity for not only investors but also the companies that private equity firms acquire:
Companies that are backed or acquired by private equity firms are often made more efficient and produce higher profits, which benefits now only the private equity firm but also the company. Private equity firms use skilled management teams to correct the problems and ineffective parts of the company and many times this intervention prevents the company from further declining or even failing.
The management receives carried interest, a portion of the profits, so managers and their staff are motivated to produce good results to investors. Although carried interest is often criticized for taking money from the investors, it is a very big incentive for managers.
By definition, private equity firms work outside the public eye and do not have to follow the same transparency standards that public firms and funds must adhere to. This allows private equity firms to reform the companies without the constraint of having to report quarterly to the SEC or similar distractions.
Private equity firms generally perform very rigorous due diligence on potential investments. By utilizing a team of researchers the private equity firm is able to identify most risks that would not otherwise be found.
Private equity managers are paid very well and so it is easy to attract high caliber, experienced managers that tend to perform very well. The same goes for lower level employees at private equity firms, they tend to be the top young business school graduates.
Private equity fund of funds are investment vehicles that pool investors’ money to invest in private equity funds. A fund of funds manager is, of course, important for the success of the fund of funds, therefore selecting a qualified fund of funds manager should be considered thoroughly.
There are three major qualifications to look at when selecting your manager: performance, management team, and the strategies and deal funds.
Performance Unlike traditional financial markets, the performance of private equity fund of funds is more difficult to analyze. This is because in private equity the investor must consider four elements: the internal rate of return (IRR), multiples, timing and return of cash. These all must be taken into consideration and weighted more or less equally when examining a manager’s global performance. Additionally, the private equity manager should have a proven long-term record, showing that he is capable of surviving good and bad financial cycles.
Management Team When performing due diligence on a fund of funds you should follow the basics that apply to other funds, and a consistent focus is on the management team and operations. This is a critical point for selecting a manager, while he is the head manager, his management team often decides the success of the fund. ‘Back office’ operations should be a big concern for investors, and as private equity evolves a greater transparency in the ‘back office’ is expected by investors. Overall, you should look for a coherent and competent team standing behind the manager.
Strategy In terms of strategy, many managers differ but the quality to look for here is clarity. A good manager can clearly and expertly explain his strategy to the investors. Specifically in the area of private equity fund of funds, a manager should have prior experience in private equity that has constructed his strategy.
Experience The popularity of fund of funds has led to the emergence of many “me too” funds that have little to no prior experience in private equity or managing a fund of funds. Proven experience in private equity or managing a fund is a big factor to consider when selecting a manager. Seniority often makes for a more knowledgeable and competent manager–although there are also very successful rookie fund managers–but also an experienced manager usually brings a strong staff that has confidence in the manager.
These are just some major points to consider when selecting a private equity fund of funds manager, but extensive interviews and research will ultimately weed out the less qualified managers and hopefully lead the fund of funds to success.
Tags: Private Equity Fund of funds, private equity funds, private equity funds of funds manager, private equity fund of funds management, selecting a fund of funds manager, private equity fund of funds selection
A management buyout is when a company’s existing managers purchase a large or majority share in the company. This form of acquisition requires the managers of the firm to use a large amount of money, often this capital comes from private equity investors. In return for providing the capital, private equity investors receive shares of the company which will hopefully increase in value under the management buyout. Managers will take the company private to realize the company’s potential performance and possibly attract public investors later.
This buyout may be leveraged using debt or directly through the investors’ capital. The managers contribute too. Although they do not have the means that investors have, managers invest what they can to purchase a small share of the company. The terms of the contract varies between buyouts but the investors usually develop an exit strategy of 3-5 years. The primary goal is the same for managers and investors: to increase profitability. Management buyouts can be risky for investors and the managers too but if it is successful both parties often net huge gains.
Private equity and hedge funds have developed a strong relationship benefiting both partners. Private equity groups own many hedge funds and make long-term investments in hedge funds. Hedge funds have entered the private equity world too, joining with major players in the private equity industry to make large buyout deals. The attraction for hedge funds is the large amount of capital flowing into private equity from institutional investors and the hope that hedge funds can boost performance through buyouts. In 2006, the average hedge fund returned 13.9%, while the average buyout fund returned 25%.
Hedge funds aren’t limited to big buyouts, they have started lending capital to smaller startups and middle-market firms. The move to private equity is logical, hedge funds have always tried to capitalize on often risky opportunities to make money. However, the risk may be too great for hedge funds in private equity, because hedge funds are known for making short investments. Private equity buyouts and even smaller venture capital investments are typically longer investments. Another risk is the illiquidity in private equity, which may be a problem for hedge funds if investors want to cash out their investment. Hedge funds are not afraid of risk so the relationship between private equity and hedge funds will probably only grow stronger in the future.
The incredible economic growth in Asia has attracted many private equity investors, hoping to diversify their portfolio while taking advantage of the vast investment opportunities that the region offers. The boom is led by the emerging economies of China who the IMF predicts to have a 10-11% growth rate and India expected to grow at 8-9%. While both countries have some political restraints, reform is in process and investment has opened up considerably in recent years.
The primary draw for private equity investment in Asia is the impressive returns many private equity funds have enjoyed recently. In 2007, private equity funds in Asia received three times the capital invested. The struggling U.S. economy has inevitably marked a decline in Asian private equity investment for 2008. Despite this, the Asian markets remain strong ensuring that the region will be a critical location for private equity.
There are many opportunities for people hoping to break into the private equity scene, so here are some quality private equity education opportunities that I’ve found:
Dartmouth offers a private equity focused MBAs. Also the Tuck School of Business is friendly to private equity students, offering internships in the industry, private equity clubs and private equity fellowships.
The Thunderbird Private Equity Center has a focus on the global private equity and venture capital industry, advancing students, investors and professionals’ understanding.
I will be adding more to this list, eventually making it into a guide of credible opportunities for those hoping to advance their career through education in private equity. If you have any potential additions please e-mail me at Theo@peblogger.com
An impressive business plan is key to attracting investors, here are Forbes‘ ten critical components to a good business strategy.
A cover sheet and table of contents: Include all the obvious like your company’s name, contact info, and a outline of what to expect in the proposal.
Executive Summary: communicate all the key elements of your proposal, and for the potential investors explain how much money you want and how you will use it.
Market Opportunity: Explain the product or service you are selling, and the buyers you target.
Industry Analysis: Introduce your competition in the industry and argue why your business will succeed against competitors.
The Team: This section should present profiles of your business’s founders, partners or officers that shows investors the skills and qualifications each member of your business possesses.
Business Model: Cover the operational structure of your business, from revenue sources (advertising, product sales, etc.) to the cost structure (salaries, rent, maintenance etc.). Explain why these costs are necessary.
Financial Projections: Offer a detailed first year income statement, balance sheet and cash flow statement. A good idea is to include these three elements for three years beyond that. Also, give a “break-even analysis” that shows how much revenue is needed to cover the initial investment.
Stress-Test the Projections: Give worst-case, average-case and best-case scenarios of how your business could fare, so you can be financially prepared.
Sources and Uses of Funds: Tell investors how you plan to spend their money and why you need the money. Startup companies often make the error of underestimating expenses, be realistic and research any possible startup costs.
Appendices: Finish your business plan with a supporting documents such as resumes, industry data, credit histories and any relevant information that doesn’t belong in the basic outline of your business.
The Private Equity Analyst is a comprehensive monthly print newsletter that provides news and information about all areas of private equity from venture capital to mezzanine financing. Started in 1988, the Private Equity Analyst has built a reputation as a top news source for private equity firms. Just one catch, a one year subscription is $1495!
A private equity fund of funds pools capital from investors and invests in private equity limited partnerships.
Benefits of a Fund of Funds
Private equity investing is typically reserved to wealthy individuals with substantial money for investing, usually more than $250,000. Fund of funds require smaller investments and so present an alternative for smaller private equity investors.
Fund of funds offer the benefit of diversification by investing in a variety of different funds, and even different industries.
Disadvantage of a Fund of Funds
A fund of funds charge an additional layer of fees for the fund of funds manager.
The minimum requirement is still substantial and may be too much of a commitment for some investors.
Private equity investors are a great source of capital for companies, here’s a profile of private equity investors.
Private equity investors are generally wealthy individuals who commit large sums of money to start-up businesses. Many private equity investors are successful entrepreneurs who offer small businesses helpful advice, experience, contacts and of course, money. Private equity investors search for companies with high-growth potential, hoping for high returns of their investments. A private investor is usually easier to attract than a venture capital fund. This is not to say that private investors will throw away their money, but with a good business proposal and some luck many small businesses have secured large investments this way. For small businesses raising capital, private equity investors can be a great alternative to larger venture capital and private equity funds
