Learning Curve

Educational pieces that describe and explain the key areas of private equity and venture capital

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• How to go public and why? 19 Nov 2008. Source: How To Go Public Inc. (HTGO). Jay Smith. Have you attempted to raise money for your company privately? Fact: it is easier to attract private placement investment capital if your company's common stock is already publicly traded, argues Jay Smith of How To Go Public Inc. A ticker symbol provides liquidity for shareholders and is a great corporate tool to attract private placement capital. This tool provides assurances to the restricted capital investors that there is a 'light at the end of the tunnel' and they will be able to realise an eventual return on investment.

• Inside the Growing Secondary Market for Venture Capital Assets 12 Nov 2008. Source: Millennium Technology Value Partners. Dan Burstein and Sam Schwerin. For the last decade, secondary market activity involving all types of private equity investments has been a booming and increasingly efficient aspect of the far larger overall private equity market. Total secondary private equity transactions have grown 14-fold over the last ten years, from approximately $600m in 1998 to well over $8bn in 2007. Indeed, secondary private equity investing grew at an even faster rate than the unprecedented and explosive growth of total private equity assets under management during the same time period. This article originally appeared in Preferred Returns, the newsletter of the American Bar Association's Section of Business Law Committee on Private Equity and Venture Capital.

• KPMG Hedge Fund Cost Survey 06 Nov 2008. Source: KPMG. The Hedge Fund industry is going through a period of significant change, with three main factors helping to shape the future:

• Credit Crunch Q&A 31 Oct 2008. Source: Greycourt. Gregory Curtis, Mark Laskow, Gregory R. Friedman, Jim Foster and Chris Fineburg. What started last summer as a traditional credit crunch has mutated into something much worse: collapsing home prices; a global stock market rout (the Chinese market is down some 50 per cent as we write); recessionary economic conditions; accelerating inflation, especially in the emerging economies (almost 9 per cent in China); a plunging US dollar; a meltdown in corporate profits; a bubble in commodity prices; danger in completely unexpected places (cash and commercial paper, for example); and the collapse of important institutions, including hundreds of mortgage brokers and lenders, to say nothing of Bear Stearns. In talking with investors, we find that they are more concerned than at any time since 1974. In the following Q&A we explore what a credit crunch is, why it happened, how it morphed into the mess we find ourselves in today, and what investors ought to be doing about it in their portfolios.

• Private equity and hedge funds 29 Oct 2008. Source: SJ Berwin. Ajay Pathak. Some politicians have fallen into the trap of bundling private equity and hedge funds together. That is a mistake: private equity is long term and long only, and that makes it fundamentally different, says Ajay Pathak of SJ Berwin. That is not to say that the two types of investment strategy cannot learn from each other, and they have done that in recent years.

• Video: VentuReality 24 Sep 2008. Source: NVCA. This is the first part of the US National Venture Capital Association's 'VentuReality', a three-part web video series that follows the humorous plight of a fictional entrepreneur in search of financing. The NVCA is celebrating its 35th anniversary this year.

• China’s private equity landscape 17 Sep 2008. Source: Weil, Gotshal & Manges. Peter Feist, Anthony Wang, Sidney Qin. Private equity investments in China continue to attract significant attention across the private equity spectrum from global buy-out funds, venture capital funds, regional funds and other investors. Unlike more developed markets where control transactions are often the focus for many investors, private equity investing in China generally takes the form of minority growth capital or pre-IPO investments in businesses where the Chinese founders or management have controlling or significant stakes, according to this article from Weil, Gotshal & Manges.

• Key structuring issues in industry roll-ups 10 Sep 2008. Source: Deacons. Nick Humphrey. There have been a number of high profile industry consolidations, or roll-ups, in recent times which have created significant shareholder value such as Fone zone, ABC Learning Centres and Medical Imaging Australia. However as powerful as the strategy is, it is not suited to all industries and there are significant execution and integration risks, writes Nicholas Humphrey of law firm Deacons.

• Private equity investing: a primer for the serious “smaller” investor 03 Sep 2008. Source: Greycourt. David Lovejoy. Once an investor decides to allocate capital to private equity, the first question is, ‘How should I go about it?’ Properly structured, private equity can be the most rewarding sector of an investment portfolio. Unfortunately, most investors in private equity do not earn returns anywhere near what they need to compensate for the risks they have taken. This paper by David Lovejoy of Greycourt looks to summarise the private equity opportunity, identify the key risks and outline a strategy for investing in private equity sensibly and profitably.

• Evaluating new and niche markets quickly 03 Sep 2008. Source: Droege & Comp. Jonathan Hardt, Dr Bjoern Roeper. Opportunistic investors in the mid market are regularly presented with potential investments in markets that are not well known. Some of these niches may prove to be overlooked gems, while others have been overlooked for a reason. The difference between the right investment and the wrong one can come down to your ability to rapidly evaluate these niche markets, according to Jonathan Hardt and Dr Bjoern Roeper of Droege & Comp.

• Demystifying the credit crunch: a primer and glossary 06 Aug 2008. Source: Arthur D. Little, The Private Equity Council. Jonathan Cheng, Matthew Walsh and Simon Flax of Arthur D. Little’s New York office. The term 'credit crunch' has entered the popular lexicon. Barely a day passes when the media is not opining on the topic. Rarely does an economic event have such a profound ripple effect on institutions and individuals throughout the world. Understandably, policy makers are working to respond to the credit crunch and its aftershocks, according to this article by the Private Equity Council and Arthur D. Little.

• Perspectives - Capital Dynamics quarterly newsletter July 2008 30 Jul 2008. Source: Capital Dynamics. Within the bulletin, the international private equity asset manager offers its views on why it is worth taking a closer look at the European venture capital industry. An easy-to-use graphical illustration of the market climate for the different regions and sectors can be found on page 3/4, followed by key market figures.

• The End Game? An analysis of the bulk buy-out market and other de-risking solutions 23 Jul 2008. Source: Punter Southall Transaction Services. Richard Jones FIA, Martin Hunter, Oliver Herbert. With a large number of players entering the UK pension bulk buy-out market in recent times, there has been considerable press speculation surrounding this market, with some commentators expecting to see rapid growth in this area. This report, by Richard Jones FIA, Martin Hunter and Oliver Herbert of Punter Southall Transaction Services, seeks to set out the current state of the annuity business, including the details of the environment in which it operates, the risks faced by insurers and a discussion of current pricing levels. It also discusses each of the current players in the market and describes the annuity purchase process, as well as looking at the buy-out decision from the perspective of the sponsoring employer. It then considers alternatives to buy-outs offered by the market, as well as other de-risking solutions available to pension schemes and their sponsoring employers.

• The Emerging View: Special Situations Update 23 Jul 2008. Source: Ashmore Investment Management Limited. Jerome Booth. The emerging markets are still largely capital scarce, with many coming out of central planning histories. The spread of market economy, orthodox fiscal and monetary policy, and improved conditions for investors are strong encouragements for private equity investing. The added difficulties to investing in emerging markets are real compared to developed countries, requiring a specialist approach, but these risks can often be substantially reduced and compensated for, writes Jerome Booth of Ashmore.

• New accounting rules affect M&A transactions 18 Jul 2008. Source: Dechert. Scott M Zimmerman, Evan D Michalovsky. The Financial Accounting Standards Board issued two new accounting standards in December 2007: FAS 141R, Business Combinations and FAS 160, Accounting for Noncontrolling Interests, dealing with the accounting and reporting of M&A transactions. Generally, the new rules require the immediate expensing of transaction costs and expand the use of fair value accounting. Both rules will be in effect for acquisitions that close in fiscal years that start after 15 December 2008. Scott M Zimmerman and Evan D Michalovsky of Dechert look at the impact these new standards will have on M&A transactions.

• Private equity made simple 16 Jul 2008. Source: The National Association of Pension Funds Limited - The NAPF. Over the past decade, the private equity industry has grown significantly and it is recognised by UK pension funds as an important asset class. With 20per cent of UK pension funds investing in private equity, the need to understand the basic principles is growing in importance, especially for pension fund trustees. In an extract from the National Association of Pension Funds' Private Equity Made Simple Guide (sponsored by SVG Capital), the importance of private equity as an asset class is explained.

• The hog cycle and private equity - or why only clever farmers ultimately earn money 30 Jun 2008. Source: SHS Gesellschaft für Beteiligungsmanagement. Reinhilde Spatscheck. Anyone who is once again amazed at the cyclical behaviour of investors might perhaps take comfort in the fact that this phenomenon has been around for quite some time. It made its way into economic textbooks under the name 'hog cycle'. It even has a theorem to call its own, the 'cobweb model'. And although nearly all financial market players have been educated in economics, only few of them draw the correct conclusions. So it would appear to be meaningful to take another look at cyclical investor behaviour patterns in the private equity sector, writes Reinhilde Spatscheck of SHS Gesellschaft für Beteiligungsmanagement.

• Loan-to-own strategies and the private equity investor 25 Jun 2008. Source: Dechert. Craig L Godshall, H Jeffrey Schwartz. The US economy is currently in a severe credit crunch as a result of the sub-prime mortgage crisis. While the downward trend of the credit markets poses a serious threat to the US economy and existing investors in troubled companies, substantial opportunity exists for investors to acquire good businesses with bad balance sheets at distressed prices by executing a loan-to-own strategy, according to Craig L Godshall and H Jeffrey Schwartz of Dechert.

• Private investments in public equity 18 Jun 2008. Source: Dechert. Brian D Short, James A Lebovitz. In the past, when private equity investors invested in a public company, they were typically taking the company private. Recently, private equity sponsors have been investing more frequently as minority holders in public companies through PIPE (private investments in public equity) transactions. Private equity sponsors have been reluctant to make these 'passive' investments. However, with the current disruption in the credit markets and the record amounts of capital in private equity funds, PIPE investments have become a more attractive means for private equity sponsors to deploy their capital, according to Brian D Short and James A Lebovitz of Dechert.

• The best of both worlds: why every consumer products company should have a private equity strategy 18 Jun 2008. Source: Ernst & Young. Until now, corporations have thought of private equity mostly as unwelcome competition for deals. Of $4.5tn worth of M&A transactions carried out in 2007, private equity deals accounted for one-fifth, or $900bn. In future, consumer products companies lacking a strategy for private equity may not only lose out on the best deals, but miss a unique opportunity to make a change in strategic and financial performance. Ernst & Young believes that for consumer product companies, crafting a strategy for private equity is no longer an optional extra.

• Private equity funds and banks: guidance on equity investments in financial institutions 28 May 2008. Source: Paul Hastings. John Douglas, Jerry Comizio, Lawrence D Kaplan. The National City capital raise with Corsair Capital is but the latest of the private equity forays into the banking business. Last month saw TPG Capital's investment in Washington Mutual. Citadel Investment Group's investment of $1.6bn in E*TRADE announced last November was perhaps the first of these during the current capital crisis, and, given the state of the banking industry at the moment, there will surely be many more, according to this report from John Douglas, Jerry Comizio and Lawrence D Kaplan of law firm Paul Hastings.

• Countdown to a bright future 21 May 2008. Source: Scottish Equity Partners. Bruce Huber. In this article from Scottish Equity Partners, Bruce Huber compiles a list of ten critical factors which will shape the future of technology investment. He identifies major new power brokers and trends and concludes that viewed collectively, they add up to a bright outlook.

• Pearls of wisdom: spotlight on non-executive director talent 09 May 2008. Source: Scottish Equity Partners. Legendary banker JPMorgan said that when two non-executive directors (NEDs) agree, most of the time one of them is unnecessary. A century after he bailed out the US financial system, his words still carry weight and in a post-Enron age the topic of NEDs continues to spark controversial exchanges, writes Scottish Equity Partners.