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Saving private equity
18/12/2002. Investment in private equity is a growing issue for UK pension funds, particularly since the Myners Review of 2001. In this overview, Russell Borland of Hymans Robertson emphasises the importance of diversification in order to ensure that exposure is not limited to one part of the market. 
How investment consultants evaluate a fund of funds manager
04/12/2002. Investment consultants have started to place a greater emphasis on the importance of properly evaluating private equity fund of funds managers. Peter Baynham of Mercer Manager Advisory Services gives an overview of the criteria that consultants now use to achieve such an evaluation.
Lies, damn lies and private equity statistics
26/11/2002. Transparency in the global private equity industry continues to be a burning issue for limited partners and performance statistics remain open to interpretation. Ray Maxwell of Invesco Asset Management discusses the problems inherent in investing in funds and outlines his requirements for the future.
Managing legal risks in down round venture financing
26/11/2002. With the steep drop in public stock markets, many venture-backed technology companies have been forced to raise subsequent rounds of financing at a much deeper discount to earlier rounds. These are known as ‘down rounds'. Gilbert & Tobin define a down round and highlight the legal issues that arise.
Issues in private equity funds
19/11/2002. Investors are increasingly turning to private equity fund investments to help boost flagging overall returns. Teresa Barger of the International Finance Corporation provides a useful overview of some of the issues for potential private equity investors to bear in mind.
What is private equity?
12/11/2002. Investors turning to private equity can be put off by the lack of basic information about the asset class. In this extract from his book European Private Equity, Garry Sharp gives a straightforward definition of private equity, with explanations of the different stages involved and the levels of return that investors can expect.
Through the ages
12/11/2002. The late 1990s will go down in history as a period of excess and profit for private equity. Since then, investors, fund managers and entrepreneurs alike have all come back to earth with a thud. However, Jan Faber of Henderson Private Capital argues that private equity continues to be an attractive investment for pension funds but it is important to look at these heady times to analyse the impact they had on fund managers – and the lessons to be learnt.
Buy-and-builds as sources of returns
05/11/2002. Buy-and-build has become an increasingly important strategy for private equity firms as a means of accelerating the growth of their portfolio companies. Javier Loizaga of Mercapital presents an overview of this approach and how it can add value for private equity investors.
Raising development capital - an introduction
29/10/2002. The process of injecting development capital can be a long and complex procedure, not only for target companies but also for venture capitalists. Taking the company management's perspective, Siobhan McElhinney of Kemp Little provides an overview of the legal and commercial issues that arise from a venture capital transaction.
Back to basics on private equity
23/10/2002. UK pension funds are in the process of increasing their exposure to private equity investments significantly. But, there is more to private equity than meets the eye. John Shearburn, Barry Griffiths and Stephen Culhane of Goldman Sachs & Co provide an insight into the intricacies of the industry in this series of articles.
What's up with down rounds?
16/10/2002. The ‘down round' became a common feature of the venture capital landscape in 2001 and 2002 as the overall malaise of the financial markets took its hold. Yet many private equity investors are unclear as to the nature of such a round of financing and its effects on the industry as a whole. Albert L Sokol, Richard G Small, Stephen O Meredith and Jonathan E Cole of Edwards & Angell clarify.
A double-edged sword
08/10/2002. The recent shake-out in the private equity industry has been reflected across all stages, none more so than in the recent slashing of large funds. But, as RMF Investment Products argues, setting the right fund size is a double-edged sword.
Private equity investing: your guide to this asset class
01/10/2002. Investors have taken some time to come round to the idea of investing in private equity, but many are now considering allocations to the asset class. Invesco offers an introduction to the subject.
The Venture Capital Guide
27/09/2002. Private equity must be unravelled if investors are going to seriously consider it as an asset class. The industry is all too often clouded in confusing terminology and complex regulations. This guide from Gilbert & Tobin gives an overview of the industry from both the entrepreneur's and investor's perspective.
Overview of global private equity investments
24/09/2002. Institutional investors have warmed to private equity as an asset class over the last few years. However, many remain confused by it. James R Hedges and Karl Morawski of LJH Global Investments provide an overview of the industry and discuss its dramatic growth worldwide.
Helping small limited partners in need - proactive solutions for defaulting LPs
18/09/2002. The general decline across the financial markets has had a marked effect on the private equity industry. Many investors are now reluctant to honour their capital commitments to the asset class. Ian Charles of Cogent Partners assesses the options for general partners and limited partners who find themselves in this predicament.
Clawback arrangements - the investor strikes back
10/09/2002. Lack of exit opportunities, portfolio company failures and the possibility that the economic recovery may be more prolonged than previously expected have given rise to a general expectation that private equity fund managers will need to come to terms with so-called ‘clawbacks'. An often confusing feature of the industry, Elizabeth Small of Edwards & Angell gives an overview of what clawbacks are and how they might affect the private equity landscape.
Private equity disciplines for the corporation
02/09/2002. Private equity returns have been stellar over the course of the last decade and, although affected by the bursting of the technology bubble, continue to offer massive rewards for the discerning investor. Paul Rogers, Tom Holland and Dan Haas of Bain & Co discuss the factors behind this success and the ways in which private equity firms add value.
Building investor confidence
27/08/2002. Venture capitalists are known for pestering their portfolio companies for endless data such as growth forecasts and detailed budgets. But what figures do venture firms have for their own performance? Daniel Lopez of IDG Ventures Europe argues that general partners could do more to foster increased confidence among their investor base.
Identifying and sourcing successful deals
26/08/2002. John Singer at Advent International on why deal flow is important today and how it may be improved through holistic and traditional methods.
Private equity's benchmark blues
21/08/2002. Private equity funds have yet to master the art of talking to institutional investors in risk-conscious terms. They're not helped by the lack of an accepted methodology for benchmarking their performance. Ben Sills investigates.
European LBOs - Key issues for US sponsors
19/08/2002. US sponsors considering European leveraged buy-out transactions should be aware that various cultural, commercial, and legal issues in Europe create a deal environment materially different from that in the US. warn David Eich, James Learner and Stuart Mills of Kirkland & Ellis offer advice on how to overcome these hurdles.
Private equity fund of fund management
06/08/2002. Funds of funds are becoming more widespread as investors increasingly see them as a good way of diversifying their portfolios. This presentation by Urs Wietlisbach of Partners Group outlines a strategic approach to investing in private equity funds of funds and the ways in which different management styles can be taken into consideration.
Process not product - the CDO beat goes on
30/07/2002. Collateralised debt obligations (CDOs) are gaining more exposure within the private equity industry as they bring additional benefits to the market such as liquidity, transparency and discipline. J Paul Forrester of Mayer, Brown, Rowe & Maw discusses CDOs, arguing that they are not simply a product but a rich and complex process.
PIPE transactions
23/07/2002. The turbulence of the public markets over the last couple of years has led many investors and companies to look at PIPEs (Private Investment in Public Equity). It does, however, have some pitfalls. Michael A Conza of Testa, Hurwitz & Thibeault gives an overview of PIPEs and discusses some of the structural issues that should be considered by investors.
European private equity funds of funds
16/07/2002. Institutional investors are showing an increasing interest in private equity, yet many are unsure as to how they should go about investing in the asset class. Stephan Breban of Watson Wyatt gives an introduction to the types of investments available, with particular emphasis on funds of funds.
Moving in tandem?
10/07/2002. Many investors went into private equity believing that it would add an element of diversification to their portfolios. However, recent turbulence in both the public and private equity markets has caused some surprise. John Barber and Laurence Zage of Helix Associates ask to what extent the two markets are correlated.
Where should the smart money go?
09/07/2002. An uncertain economic climate is changing the face of private equity. It is essential that investors keep up to date with changing patterns to ensure their capital is allocated to areas with the potential for high returns. Ian Armitage of Hg Capital considers recent developments.
Private equity: today America, tomorrow the world
03/07/2002. Private equity has enjoyed enormous growth in recent years with more and more investors recognising it as a worthwhile asset class. Ray Maxwell of Invesco examines how its growth is not unique to the US – a sign of the globalisation of the industry.
Building up again
03/07/2002. Although displaying a more cautious approach to private equity, investors are still attracted to its long-term benefits. James Norris of EPN argues that it is not all doom and gloom for the industry.
Due diligence questionnaire
01/07/2002. Investing successfully in private equity, at a fund or company level, involves thorough investigation. As a long-term investment, it is essential to review and analyse all aspects of the deal before signing. This questionnaire and survey from Pension Consulting Alliance offers investors a useful tool to perform their own initial due diligence. In an industry without the basic standards for reporting and benchmarking performance, this questionnaire may well prove to be invaluable.
A practical guide to MBOs
25/06/2002. Management buy-outs have gone from being a relatively rare occurrence to being one of the most popular forms of acquisition. Deloitte & Touche presents a guide to the MBO that gives an overview of what the process entails.
Private equity: the role of fund of funds investing
18/06/2002. Even though the markets have become more volatile, institutional investors should still consider investing in private equity. Ray Maxwell of Invesco argues that private equity can help to diversify a portfolio and balance risk and return in the long term.
Private equity comes of age
18/06/2002. The cyclical nature of the private equity industry is not without its benefits, even if the current climate is subdued. It allows industry participants to take stock of the situation and decide its future direction. Trevor Cook of Specialist Pension Services argues that to capture the hearts of the majority of institutional investors, private equity firms must become far more professional in their sales and marketing techniques.
Value-creation in buy-outs
12/06/2002. It may take up to five years for a private equity investment to mature and even then it can only be realised on exit. So, asks Jon Moulton of Alchemy, what can fund managers do in the interim period to add value to their portfolios and ensure the best exit price?
The vintage years ahead
12/06/2002. The next few years are likely to be good vintage for private equity in Europe and a valuable source of diversification for institutional investors, says Rajveer Ranawat at AIG Global Investment Corp. However, it is still critical to select private equity fund managers in a way that maximises the upside potential that the asset class presents and minimises the inherent downside risks in this business.
Special rules of the game
12/06/2002. Investment into private equity funds continues to rise even though the industry itself continues to struggle. Helen Steers of Frank Russell Company discusses the rise in popularity of an asset class that was once seen as exotic and non-traditional but is now a common constituent of many investors' portfolios.
Nothing ventured, nothing gained
12/06/2002. The losses incurred by high profile private equity firms in recent months have created an air of caution among institutional investors. Tord Stallvik of Schroders Alternative Investments Group argues the benefits behind a fund of funds and why managers with proven track records should continue to outperform.
The role of venture capital in an institutional portfolio
04/06/2002. Private equity investment is not for the faint hearted, says Nick Fitzpatrick of Bacon & Woodrow. New investors, must note that, while the asset class offers both diversification and promises high returns, it is also weighed down by poor valuation mechanisms and illiquidity. Investors must be prepared to wait over five years for meaningful performance figures and good returns on investment.
Historical distributions of IRR in private equity
04/06/2002. Before investing in any asset class, institutional investors need to know its historical performance to gauge the benefits of such an investment. Barry Griffiths of Goldman Sachs' Private Equity Group analyses the performance of private equity using IRR as a measurement.
Pension funds keep their cool
29/05/2002. Before spring 2000, most institutional investors were jumping on the private equity bandwagon in search of high returns. Rachel Fixsen of I&PE finds that investor sentiment towards the asset class is now mixed given the current, less frenzied, climate.
Demystifying private equity
27/05/2002. How has the private equity class developed and how may it be categorised, asks Guy Eastman of Schroder Ventures. He offers new investors some advice.
Important considerations in portfolio allocation to private equity
21/05/2002. Private equity has become increasingly popular among institutional investors. However, as Fort Washington Capital Partners discusses, it is important for investors to understand the industry and the characteristics of a diversified private equity portfolio.
Jumpstart with debt
21/05/2002. Convertible debt provides a fairly simple solution to some of the valuation and timing issues faced by entrepreneurs and investors alike. Given today's difficult financing environment, the use of convertible debt is likely to continue to grow as attorneys, accountants, entrepreneurs and investors become more familiar with the structure. Michael Fieweger of Baker & McKenzie explains.
The investment benefits of traditional alternatives: venture capital, private debt and private equity
15/05/2002. Alternative investments, such as venture capital and private equity, offer institutional investors a means of diversifying their portfolio, offering risk and return opportunities not found in traditional investments. Thomas Schneeweis of the University of Massachusetts assesses the benefits of private equity as part of an investor's overall portfolio.
Note on venture capital
08/05/2002. Although it is becoming far more popular among institutional investors, venture capital is still seen by many as a grey area. Martin Kenney, a professor at the University of California, unravels the complex nature of the industry by explaining its processes and history.
Anatomy of a VC - it's the home run that counts
02/05/2002. A venture capitalist must inspire market confidence in order to raise future funds from institutional investors. Shelley Dempsey of australia.internet coins a well known baseball phrase to exemplify how this is achieved – all it takes is one or two home runs.
Building a global bridge
30/04/2002. Many institutional investors are deterred by the lack of transparency in the European private equity market. Recent developments have gone some way to rectifying this but, as Robeco's Ad van den Ouweland argues, the asset class will not be wholly accepted until reporting between limited and general partners has improved.
Winning strategies for creating value and prospering in the next era of private equity
23/04/2002. Investors in private equity have suffered a fair amount of disappointment recently. This is partly down to over exuberance on the part of limited and general partners and to over-selling, says Dominique Peninon of Access Capital Partners. So how can fund managers ensure that investors expectations remain realistic to prevent this from happening in the future?
Step up to the private equity cash window
23/04/2002. The generic term ‘private equity' encapsulates a variety of sub-investment categories. Francois de Visscher of De Visscher & Co describes four different fund types that fall under the private equity banner.
An overview of the venture capital industry
16/04/2002. At first glance, the private equity and venture capital industry can seem confusing and inaccessible to many institutional investors. Michael Kromirs of Venture Investment Associates provides a comprehensive overview of what venture capital entails.
I keep on hearing that now is the best time to be committing to private equity. Why is this?
16/04/2002. A: From Hamish Mair, Martin Currie. As we entered 2002 the economy and financial markets were giving mixed signals about the outlook. Positive factors included persistently low inflation and interest rates with little likelihood of increases in the short term.
Next generation'private equity managers
15/04/2002. Private equity fund investors should be looking to build high-performing portfolios that are diversified and sustainable. To do this, argues Richard Sachar of Almeida Capital, they need to include next generation managers - experienced private equity investors with the potential to become tomorrow's stars.
Lack of transparency and high fees
11/04/2002. If LPs want to improve transparency in their investments then they must do their homework, says Ray Maxwell of Invesco. Generally, detailed information will not be spoon-fed and must be dug out if you want a realistic picture of your general partners.
Private equity primer
10/04/2002. For many investors new to the asset class, private equity can be bewildering. Meketa Investment Group offers a detailed overview of the characteristics of the private equity industry and what it can offer its investors.
How to measure private equity fund performance
10/04/2002. Without any clear benchmarking tool it is difficult for investors to measure private equity performance. But, argues Mike Smith at Hewitt International, if investors keep a cool head it is possible to work out a realistic IRR to expect from their investments.
Time for the experience curve to take effect
26/03/2002. Successful private equity investing is dependent on experienced deal-makers but, says John Hartz of Inflexion, grey hair is scarce these days. Two-thirds of executives working in the asset class are of a high calibre but have less than five years' experience.
Effective exit strategies
26/03/2002. It may be a good time to invest now, but as Jon Moulton from Alchemy Partners says, private equity managers would do well to think about their exit strategies before they commit their cash. He points to some disturbing trends in the UK, mainly that the most common form of exit is receivership.
Why primary and secondary funds of funds are still of key interest
26/03/2002. Investors in private equity funds have seen their returns plummet over the last couple of years and are understandably cautious at the moment. However, as Charles Soulignac of Fondinvest argues, primary and secondary funds of funds remain an effective vehicle – allowing investors to take advantage of private equity while still controlling risks.
Cash flows from private equity investments are notoriously random. Doesn't this make it hard for investors to maintain their allocations?
25/03/2002. A: From Stephen McCourt, Meketa Investment Group. Unlike public common stock investments, private equity partnerships are self-liquidating. Thus, if assets are committed to private equity in a single partnership, and if the lifetime of that partnership is ten years, then a fund will be liquidated back out of private equity within ten years.
Venture capital funds: structure and risk exposures
20/03/2002. How are private equity funds structured? And what are the responsibilities and risks of litigation associated with that structure? John D Hughes of Hutchins, Wheeler & Dittmar explains, offering investors a good overview of the industry and explaining the duty of care a general partner has to his limited partners and portfolio companies.
Portfolio construction
12/03/2002. In the early days of private equity investing, there were few choices open to limited partners. These days, the huge scope available to investors offers a great opportunity for diversification within the asset class. Gail Sweeney, Joe Taylor, Lisa Edgar, and Robert Eu of WR Hambrecht Asset Management explain how it is possible to develop a disciplined approach to building a portfolio of private equity partnerships.
We have been told that funds of funds can help investors learn about the asset class. What can they teach us that we wouldn't be able to learn on our own?
12/03/2002. A: From Timothy J Reynolds, general partner, von Braun & Schreiber Private Equity Partners. The simple answer is nothing. A fund of funds is merely doing already what you want to do – investing in private equity funds – and merely possesses already the knowledge and abilities that you need for success. Thus, before the learning question, you and your organisation should decide who is best suited to handle the professional private equity investor function – you, an external private equity professional or some combination of the two.
Market timing
05/03/2002. One of the defining characteristics of investing in the private equity market is the difficulty of predicting the length of time for which capital will be allocated. This investment class is illiquid and as a result investors may find it difficult to plan ahead. Gail Sweeney, Lisa Edgar, Joe Taylor and Robert Eu of WR Hambrecht Asset Management argue against trying to time the market and suggest instead a formal rebalancing program similar to that practised in the public markets.
The sub-asset classes
26/02/2002. Private equity is going through a difficult time at the moment, with declining returns, plummeting valuations and a difficult fund raising market causing many firms to flounder. At the same time, investors who have been less disciplined than usual over the last few years may well be regretting some of their decisions. Gail Sweeney, Joe Taylor, Lisa Edgar and Robert Eu of WR Hambrecht Asset Management examine the importance of structured sub-asset allocations in private equity (part one of a three part study).
Why private equity?
25/02/2002. Private equity can be a good investment, but only if a portfolio is developed gradually, says Richard Hotchkis of the Co-operative Insurance Society. Investors should be cautious and fully appreciate all the risks of committing to this asset class.
It is all very well for Paul Myners to suggest that institutions should consider investing in private equity, but aren't trustees in danger of falling foul of section 191 of the FSA if they allocate to the asset class?
19/02/2002. A: From Monica Ma, Simmons & Simmons: Section 191 of the Financial Services Act 1986 (FSA 1986) provided, broadly, that the trustees of a pension fund had to be authorised under the FSA 1986 unless all decisions or all day-to-day decisions in relation to pension scheme investments were made on their behalf by an authorised person.
Private equity funds reward right investor
19/02/2002. Private equity investing includes much, much more than simply backing leveraged buy-outs. Jonathan Bergman of Palisades Hudson Asset Management, Inc. explains how the LBO and wider private equity market has changed since the heady days of the late 1980s and offers an overview of how limited partners can invest in this increasingly popular asset class.
The management and sale of distributed securities
19/02/2002. Distributions in kind, whereby private equity firms return shares to their investors in place of cash, can be burdensome to administer. Lisa Edgar, Gail Sweeney and Joe Taylor of WR Hambrecht Asset Management examine why the ability to handle stock distributions efficiently is a core factor for limited partners in a private equity investment programme.
Private equity and venture capital - an overview
18/02/2002. Private equity has become part of the global investment landscape and can help institutional investors boost their overall returns. Almeida Capital offers an introduction and an insight into this market.
How do traditional Anglo-Saxon legal tools need to be adapted to private equity deals on the Continent?
12/02/2002. The single jurisdiction traditional management buy-out deal has faded into distant memory for the larger participants in the UK buy-out industry. Allison Hampton from Lovells looks at how lawyers from across Europe, and particularly those in the very active markets such as Germany, France and Italy, have adapted their traditional structures and company law principles to accommodate Anglo-Saxon style buy-out concepts.
The role of the venture capital provider
12/02/2002. The venture capital industry is a complex world that can often leave the newcomer a little confused. In this extract from ‘Unlocking Growth', published by the Centre for Policy Studies, Patrick Burgess of Gouldens breaks the industry down to its basics and provides an overview of what it entails.
Co-investment strategies
12/02/2002. Limited partners are increasingly considering establishing or participating in co-investment strategies as a way of boosting their overall private equity returns. This report by Gail Sweeney and Joseph Taylor of WR Hambrecht Asset Management explores this recent development.
I've heard a lot recently about private equity firms distributing shares as a way of providing returns to investors. Doesn't this just create headaches for investors?
12/02/2002. A: From Ed Rieger, J&W Seligman & Co: Stock distributions have been a growing issue for many institutional investors and, yes, they can be quite burdensome.
Every private equity firm I meet claims to be 'value-added'. How exactly do they add value?
06/02/2002. A: From Ian Armitage, HgCapital. This is a great question and one that my colleagues ask me every day.
Basic instinct
05/02/2002. The money's still out there for the right business plan, but now more than ever fundamentals count. Bill Stensrud of Enterprise Partners lays out some of the best approaches to securing funding from a more cautious VC environment. A good introduction for investors looking to understand what venture capitalists tend to look for.
Selection of private equity fund of funds - managers: a few clues
30/01/2002. Private equity's ‘euphoria' period of 1995-2000 has given way to a downturn in the industry as investors face a slowdown on stock markets and have less capital to commit to the asset class. Charles Soulignac of Fondinvest Capital documents the rise in fund of funds activity and suggests some fundamental points when selecting a fund of funds manager.
Performing manager due diligence and monitoring performance and risk
28/01/2002. Due diligence on prospective fund managers is an essential process for investors before committing to a private equity fund. This presentation from Hewitt Investment Group offers some guidance on which areas to investigate in alternative investments.
 It takes more than money - building win-win relationships
28/01/2002. There are increasing numbers of fund of funds entering the market. But what are the benefits for the investor of using fund of funds? Claus Stenbaek of Danske Private Equity considers the options.
I have been told that now is a great time to be investing in private equity because it is counter-cyclical, but my pension fund is not ready to invest. How much difference does timing really make?
23/01/2002. A: From Michael D Smith, Hewitt Investment Group: The question of timing is an important one, but it should be kept separate from the decision to invest in private equity. That is, regardless of private equity's attractiveness, institutional investors should not make an allocation until they are ready. Investors first must ensure that adding the asset class to their plan is consistent with their goals and risk posture.
Reforming capital gains tax - a barrier to exit and a fetter on liquidity
22/01/2002. A substantial cut in American capital gains tax 20 years ago has elevated the US to world leader in the venture capital industry. Here, Patrick Burgess from Gouldens examines how the UK must alter its taxation policies to be able to enjoy similar success.
The smart VC: down but not out
22/01/2002. A ‘down round' of financing occurs when an investor places a lower valuation on a company than in a previous round. This can have a devastating effect on a business and dilutes investors shareholdings. Red Herring explores the issues involved.
My pension fund is about to start investing in private equity with a relatively small allocation. How can we be sure that we gain adequate exposure?
16/01/2002. From Geoff Singleton, Hymans Robertson. The strategic argument for investing in private equity is relatively straightforward. Provided a scheme can take a long-term perspective and can accommodate the relative illiquidity of the asset class, our analysis suggests that potentially a modest allocation to private equity is effective in both enhancing returns and reducing overall portfolio risk.
Making a smooth exit when deals go sour
15/01/2002. Private equity returns are heavily dependent on achieving the best possible exit price. But what happens when a company fails? Janine Canham and Wen Leung at Cameron McKenna look at the options available as the market continues to change.
What do venture capitalists do?
11/01/2002. Venture capitalists have been known to receive a bad press in the past. BBC News Online takes a closer look at what venture capitalists actually do in an attempt to set the record straight.
There is a lot of talk about bloodshed in the private equity market at the moment. Why would anyone want to invest?
07/01/2002. From John Porter, Hamburgische Landesbank: There may well be bloodshed, but we still believe that private equity will continue to provide high returns in the future.
Running on empty
07/01/2002. There are a number of alternatives available to fund managers for dealing with current liquidity issues. Fund managers will need to review their own unique circumstances when determining which alternative provides the best solution for their fund. With careful planning and consideration, managers will be able to present to investors a path to liquidity for their portfolios in today's challenging environment. Stephen Mears from THT looks at some of the options.
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