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Private equity as an asset class23/07/2008. Source: Wiley Finance. Guy Fraser-Sampson 
 Guy Fraser-Sampson draws upon 20 years of private equity experience to provide a practical guide to mastering the intricacies of this highly specialist asset class. Aimed equally at investors, professionals, and business school students, it starts with such fundamental questions as 'What is private equity?' and progresses to a detailed analysis of venture and buy-out returns.
Sample chapter - Chapter 1
What is Private Equity?
It used to be quite easy to define what was and was not a private equity investment: “any equity investment in a company which is not quoted on a stock exchange”. In truth, however, this rather simplistic description has been in trouble for a long time. What about investments that are structured as convertible debt? What about companies which are publicly listed but are taken private? Or where the company remains
listed but the particular instrument into which the new investment
occurs is not?
What about a situation where an interest in a company is acquired
not for itself but with the intention of gaining ownership of underlying
assets, particularly property (real estate) related assets? Even a few
years ago many would have drawn back from classifying this as a
pukkah private equity transaction, yet today funds are being raised
specifi cally to target such opportunities.
There again, there is the whole secondaries scene, where existing
interests in private equity are traded between investors. Just to complicate matters still further, secondary players are today equally happy to buy directly the underlying investments of the fund, and frequently to make primary investments in new funds as well.
Clearly the question “what is private equity?” is no longer capable
of a quick and simple answer, even if it ever was. Without wishing to
confuse you still further, there is an increasing convergence between
the activities of private equity funds, hedge funds and property funds,
and by the time this book is published we may well have seen the first
recorded example of all three co-operating together on the same transaction; it can only be a matter of time. However, there was a well-known law case in England many years ago when a judge famously said that although you cannot defi ne an elephant you still recognise one when you see it (though some believe he may have pinched this idea from Doctor Johnson without acknowledgement). I think all of us will have
an instinct for what a private equity transaction is or is not, but it is
growing increasingly diffi cult to be certain about this as the parameters
of the asset class are being stretched all the time.
In this chapter I am going to set out some basic concepts of how
private equity functions as an asset class, many of which will then be
developed in more detail in the following chapters. This opening chapter
will thus be of most use to those with no prior experience of private
equity, but I would urge the rest of you to stay with us rather than
turning straight to the next chapter, as I will be referring later in the
book to these concepts intending them to have precisely the meaning
and context to which I am just about to ascribe them.
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Copyright ©2007
John Wiley & Sons Ltd
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Guy Fraser-Sampson originally qualified as a lawyer and became an equity partner in a City of London law firm at the age of 26, having already been elected a Fellow of the Royal Society of Arts, a member of the Institute of Advanced Legal Studies, and a member of the Chartered Institute of Arbitrators. In 1986 he left the law and has since gained twenty years' experience in the investment arena, particularly in the field of private equity.
He is perhaps best known for having set up and run for several years the European operations of US fund of funds manager Horsley Bridge. Previously he lived and worked in the Middle East as Investment Controller with the Abu Dhabi Investment Authority ("ADIA"). ADIA was at that time publicly acknowledged to be the biggest single investor on every European stock market, the biggest single investor in European private equity, and one of the largest investors in the world.
Private Equity as an asset class was published in February 2007 and went straight into the Amazon best-seller list, where it has stayed ever since, selling over five thousand copies in its first year. One private equity publication has described it as "a masterpiece by the acknowledged expert in the field". The Chairman of the European Venture Capital Association said that it "shines a torch of clarity into some dimly lit areas of private equity theory and practice".
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