Private Equity
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For Carlyle, Private Equity Business Is a Standout

For Carlyle, Private Equity Business Is a Standout | Private Equity | Scoop.it
The big investment firm said on Wednesday that its private equity funds rose in value by 9 percent in the fourth quarter of 2013, bringing the year’s gains to 30 percent.
Thomas Wolff's insight:

An illustrative article which allows to take Carlyle as an example to highlight how PE investment firms diversify into other classes of assets to adapt to boom and bust cycles.

Carlyle's oldest business is PE, and the company became famous thanks to its LBOs. In 2013 yet, this activity only represented 34% of the group's AUM, showing how the group had to diversify over its development in order to overcome the busts of the PE industry. In 2013, its PE business, which is in a recovery phase, rose by 30%, vs. only 1% for the Real Estate business.

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Want Private Equity Type Returns Through a Listed Vehicle? Look Here.

Want Private Equity Type Returns Through a Listed Vehicle? Look Here. | Private Equity | Scoop.it
Prequin’s latest newsletter “Prequin Private Equity Benchmarks, Q1 2013,” contains information about an innovative ETF that delivers
Thomas Wolff's insight:

An example of a good alternative security which offers PE-like returns without the liquidity issues.

Although that type of asset is not stricto sensu a PE investment (it just mimics the return of Nomura QES Modelled Private Equity Returns Index (PERI), it may offer a good alternative for investors looking for similar returns than PE and less risk.

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Pension Funds Get Queasy over Private Equity

Pension Funds Get Queasy over Private Equity | Private Equity | Scoop.it
They may pull back their private equity investments amid criticism of Mitt Romney and Bain Capital
Thomas Wolff's insight:

Private Equity has always had bad public image, often accused of focusing on their own financial interests, at the cost of employees and disregarding the situation they left their portfolio companies in (overendebted, rampaged).
Although I do not share that view at all (according to me it is nothing more than a coarsely generalizing the excesses of a minority to a whole industry that could be potentialy very benefical for everyone), it seems that the bad image of the sector is now spreading among LPs. Pension funds indeed seem to consider that the fees required from GPs are too expensive.
If even the historical/biggest contributing LPs are "getting queasy" over PE, how could individals (who are likely to become a new source of capital according to Kevin Albert) possibly feel comfortable with that industry?

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The Evolution of the Private Equity Industry: Video

The Evolution of the Private Equity Industry: Video | Private Equity | Scoop.it
Pantheon Ventures Partner Kevin Albert discusses the evolution of the private equity industry with Deirdre Bolton on Bloomberg Television's "Money Moves." (Source: Bloomberg)
Thomas Wolff's insight:

As highlighted by Kevin Albert (Head of Business Development and member of the Partnership Board at Pantheon Ventures) the PE industry is currently experiencing a great transformation. The industry is mature and consolidation among the players is to be expected over the next few years. Above all, the capital flows are changing and historical LPs such as pension funds are losing interest in this assets class.
Although Albert tackles new potential sources of capital (IRAs, Individuals), the illiquidity aspect of PE funds may deter new investors to commit large amount of capital into such assets.

Instead of focusing our attention on LPs, wouldn't it be worth having a look at the very structure and characteristics of PE's investment vehicles and try to find means to make them more liquid and less restrictive?

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Private Equity ETFs in Focus After Record Year | ETF Database

Private Equity ETFs in Focus After Record Year | ETF Database | Private Equity | Scoop.it
Thomas Wolff's insight:

Another paper highlighting the cheaper/more liquid aspects of PE ETFs compared to traditional PE.

Those ETFs make PE more accessible to non-deep pocket investors, and offers very attractive returns as well. Moreover, with the recovery of both fundraisings and PE activity, PE ETFs may offer an interesting alternative.

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Private Equity Activity – Add-Ons

Private Equity Activity – Add-Ons | Private Equity | Scoop.it
Private equity firms are aggressively pursuing add-on acquisition opportunities, which most middle-market business aren't aware of and should be if they are looking to sell.
Thomas Wolff's insight:

Interesting pieces of information from Pitchbook, which, in line with the work done by Acharya (Corporate Governance and Value Creation, Evidence from PE - 2011), would tend to show that PE firms indeed need at least 50% of their partners having an operational background.

That share has however been decreasing over the past 10 years, as the share of PE-backed companies leading add-ons has been growing quite tremendously.

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BVCA Weekly Brief - 2.09.2013 - The Issue of Team Stability and PE Fund Returns

"The authors found that only individuals with operational expertise, those who had honed their skills running business operations and then brought them to bear in PE, had a positive and material effect on fund returns."

"They found that a one per cent rise in team turnover between one funraising cycle and the next leads to an approximately ten per cent higher net IRR in the subsequent fund."

Thomas Wolff's insight:

Article published following an update of the Team Stability and PE Performance paper written by academics from the London Business School and professionals from Capital Dynamics.

 

Among the interesting points brought up in the study, the authors suggest that a premium should be granted to PE funds promoting an industrial approach and focusing on operational changes in their portfolio companies. Considering that operational factors (rising sales, increase in profitability) are also the main drivers for delivering high returns to fund, foster GPs to focus on them should be benefical for both the PE sector and indsutrial companies.

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