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Private Equity Fund Marketing

2009-07-19T14:21:00.000-04:00

Private Equity Fund Marketing

Educational Strategy to Private Equity Fund Marketing

The following is a part of our guide to private equity fund marketing tactics that we are building. These are strategies that fund managers should investigate further while working to raise capital for their funds. Before taking any of these actions please consult with your compliance and legal counsel for confirmation that you are able to use these methods to market your specific fund.

An Educational Marketing Approach

In a survey of institutional investors, the high majority said that they are unwilling to invest in something that they do not understand. Therefore your job in marketing your fund is explaining the fundamental aspects of the fund. Your chances of successfully marketing your fund will rise significantly if you take a more educational and easy-to-understand approach.

One way to out-market your competitors is by moving away from the secretive approach, wherein, some fund managers purposely position their fund to appear "black box" and top secret. Instead, you could market your fund as a more open, transparent alternative. Explaining your investment process and strategy in a straight-forward way removes some of the shroud around alternative assets. With impending regulation over the private equity industry it makes sense to embrace transparency and it lays a solid foundation for a future general-limited partner relationship.

While your explanation can be simple, this does not mean that you or your fund are simple. You can still note that your fund uses advanced methods or models for managing its investments. This is a crucial point in simplifying your fund marketing technique: do not undervalue your company giving the investor the impression that you are behind the curve. If the investor wants to know more, most institutional and individual private equity investors are experienced enough to ask for more details which you can gradually offer. The trick in doing this right is striking a balance between providing enough detail and real meat that an institutional investor or consultant will gain some granularity without completely overwhelming the investors or wealth managers who may be less versed in common private equity fund portfolio management techniques.

Tags: private equity marketing, private equity fund marketing, private equity marketing materials, private equity fund marketing, marketing your fund, how to market a private equity fund

What is a Third Party Marketer? Third Party Marketing Definition

2009-07-16T15:02:00.002-04:00

Third Party Marketing Industry

Below is a 10 minute video on third party marketing trends and insights. Within this video I talk about the definition of a third party marketer, how third party marketing firms charge fees to their investment fund clients, the contractual challenges of the third party marketing industry and how many marketers are now focusing on marketing to one single investment channel. If you are viewing our newsletter via email please click here to watch the embedded video.

Tags: third party marketing, raising capital, investment fund capital raising, investment fundraising, hedge fund marketing, hedge fund sales, hedge fund third party marketer

Private Equity Defense

2009-07-15T15:45:00.007-04:00

Private Equity Defense

Private Equity Council's Testimony to the Senate

The Private Equity Council is a trade association that represents twelve of the biggest private equity groups. Today, Mark Tresnowski will speak on behalf of the Council before a Senate Subcommittee on Securities, Insurance, and Investment. It's important to dispel the erroneous stereotypes of private equity and to distinguish the industry from seemingly-similar but very different private investment areas such as hedge funds, venture capital and others.

Explaining Private Equity

Mr. Tresnowski begins with a brief explanation of private equity, dispelling some typical misconceptions of the industry. Tresnowski points out that PE firms and senior managers put their own capital at risk, too. This is significant because a typical argument for stringently regulating private equity firms is that they may recklessly invest the fund in risky ventures, hoping for the big carry and paying no penalty for a bad deal. Because buyout firms and managers often have "skin in the game" they do not act as carelessly as is often suggested. He concludes, "the PE model ensures that the interests of the shareholders (GPs and LPs) and the interests of management are fully aligned."

Jobs Creation Vs. Loss

Mr. Tresnowski also touched on a sensitive aspect, job loss vs. creation when public companies are taken private. He highlights a The World Economic Forum report which found: "before they were acquired, private equity-owned companies on average were losing jobs at existing facilities faster than their competitors. But by the fourth year of private equity ownership, employment levels at those companies had increased to above the industry average. It also reported that in the first two years of private equity ownership, private equity portfolio companies increased the rate of job growth at new U.S. facilities to six percent above the industry average."

In a rough economy, private equity firms are vulnerable to attacks from employee unions and media criticism if they reduce jobs at a firm. This is often a necessary sacrifice for ultimately bettering the company, as a private equity management team looks to improve the company by cutting unnecessary jobs or expenses. An Ernst and Young study came to a similar conclusion "that at eight out of ten private equity portfolio company’s employment is sustained or increased over time." So there is data that negates the claim that private equity firms always cut jobs, moreover, often buyout groups actually increase jobs.

When Will Returns Return?

The value of portfolio companies also grows. According to the Ernst & Young survey, the businesses acquired by PE firms saw an increase in value of 83% during the years they were taken private. This value has transferred into impressive returns to private equity investors, a large portion of these LPs are institutional investors such as pension funds, endowments and foundations. The government has signaled a push toward protecting institutional investors--especially pension funds, which have taken huge hits lately--from greater losses. However, increasing regulation too much overlooks the huge returns institutional investors have enjoyed during a better economy.

Also, while returns to investors are poor now, private equity is a long-term investment strategy. Tresnowski is optimistic about the future of these currently struggling firms, " Many investments now marked down as a result of the recession are likely to recover and be profitable for LPs, though perhaps not as profitable as was the case in more robust economic cycles." Although some people are sure to lose their jobs in portfolio companies and entire companies may fall by the wayside, Tresnowski emphasizes that private equity firms do not represent a systemic risk to financial stability.

Private Equity Not a Systemic Risk

The Council then offers a series of reasons why private equity does not pose a systemic risk. Chief among the Obama Administration's concerns is the use of leverage. The Private Equity Council rejects this charge, claiming that private equity firms use little debt and typically rely on a 3:1 debt-to-equity ratio, compared to Lehman Brothers' 32:1 ratio. (I'm not sure it helps a case to compare yourself to a collapsed company saying "we're not as leveraged..."). The Council rightly points out that PE firms typically have a long-term commitment of at least 5 years and as much as 12 years with a portfolio company--a strong reason for differentiating private equity from hedge funds or venture capital.

The other threat to systemic collapse is cross-collateralized assets where a lender or shareholders can force the firm to sell off unrelated assets to pay off a debt. Private equity firms are not cross-collateralized so there is no possibility of one private equity portfolio company's bad performance impacting another directly. Furthermore, private equity firms try to diversify their investments across various business sectors to limit exposure to a single floundering industry.

The Private Equity Council's closing statement quotes economist Dr. Robert Shapiro's advice: “In good and bad times, the core business of private equity funds is to identify firms with long-term potential for higher productivity, sales and profits; secure the capital to purchase these firms; and inject additional capital, improve their strategies and reorganize their operations, to achieve higher returns. Public policy should support these activities, especially during the current crisis, and refrain from imposing additional burdens that could hamper these activities or redirect them to other economies.”

The following is the full testimony and includes notes on where to find all the supporting data:
Tresnowski Testimony

Tags: Private equity testimony, private equity council, private equity defense, private equity senate, private equity regulation, private equity regulations, regulation of private equity

Charles Giancarlo

2009-07-15T01:51:00.000-04:00

Charles Giancarlo

Silver Lake's Charles Giancarlo Predicts PE Future

Silver Lake Partners is considered the biggest private equity firm focused on technology. The firm has an estimated $14 billion in assets under management. Silver Lake Partner's Managing Director, Charles Giancarlo, spoke on Bloomberg News about the outlook for private equity, giving his view from a technology investor's perspective.

Giancarlo was expected to lead Cisco but chose instead to work with Silver Lake Partners. He believes that new inventions and technologies will lead the economic recovery. He says what most commentators have said, that private equity deals will be back but with significantly less debt. About halfway through the video Giancarlo gives a very clear explanation for why private equity firms aren't doing deals despite very low equity values.

As of July 16, 2009, Silver Lake Partner's portfolio includes:

COMPANY	BUSINESS DESCRIPTION	YEAR
Avago	Semiconductors	2005
Avaya	Telecom	2007
Flextronics	EMS	2003
Gartner	IT Research	2000
Gerson Lehrman	Expert Consultant Network	2008
Intelsat	Satellite Services	2008
IPC	Trading Systems	2006
NASDAQ OMX	Financial Exchange	2005
NetScout	Network Management	2007
NXP	Semiconductors	2006
Sabre	Travel Services	2007
Serena	Software	2006
SunGard	Software/Processing	2005

For a video of Silver Lake Partners' Glenn Hutchins speaking at the Davos 2008 conference follow this link.

This is part of our on-going effort to provide Private Equity Tracker Profiles.

Tags: Silver lake private equity, Silver Lake Capital, Silver Lake Partners, Silver Lake Partners Private Equity, Private Equity Technology, Silverlake Partners, Silver Lake Charles Giancarlo

Brookstone Partners

2009-07-14T18:01:00.000-04:00

Brookstone Partners

Interview with Brookstone Partners' Michael Toporek

Dan Primack recently conducted an interview with Michael Toporek, the managing director of Brookstone Partners, a New York-based mid-market private equity firm.

The private equity group is unique in that Brookstone does not open traditional funds, choosing instead to raise money for individual deals that the firm finds. Mr. Toporek sees this approach as advantageous because none of his funds are cross-collateralised and it lets the firm obtain talented people by offering new personnel carry in new and/or existing portfolio companies. This flexibility gives Brookstone Partners an edge, according to Toporek.

He also discusses why Brookstone Partners has not made a new investment in over a year, deal terms, exits and what a portfolio company needs to go public. Here is the interview:

Tags: private equity pehub, private equity michael toporek, Michael Toporek, Brookstone Partners Michael Toporek, Managing Director Michael Toporek, Brookstone Partners Investments

Bain Capital Private Equity

2009-07-14T13:21:00.004-04:00

Bain Capital Private Equity

Private Equity Bain Capital Invests in China's GOME

Bain Capital LLC, a private equity firm based in Boston, recently closed a deal to invest as much as $420 million in Chinese electronics retailer, GOME Electrical Holdings Ltd. Bain Capital decided that it would settle the role of second largest shareholder in the company. The private equity group hopes to change GOME's recent trend of declining revenues and profits. Other buyout firms competed for the prized stake, Kohlberg Kravis Roberts & Co. as well as Warburg Pincus tried for months.

There is an element of risk in this venture; Huang Guangyu, the founder and former chairman of GOME, was arrested in November accused of "economic crimes." Importantly, Huang is the retains the largest stake in the company. He and his wife have a combined 35.6% stake in GOME. Although Huang was replaced as chairman by Chen Xiao, the biggest shareholder's legal troubles add to the obstacles Bain Capital is facing.

Jonathon Zhu, Bain's managing director leading the deal, gave an interview with the WSJ concerning the GOME deal. The following are excerpts relating to Huang's trouble from the Q&A session but you can read the whole transcript here.

When did Bain identify GOME as an investment target?
"When news of GOME’s founder’s legal problems surfaced, we went and talked to Chen. The company was in a crisis mode, and needed to stabilize supplier and banker relationships. Shortly after, it thought about bringing in outside investors. We started a conversation in December 2008."

The investment carries some obvious risk given Huang’s legal trouble. What helped you get comfortable with it?

It’s certainly a hairy situation, and Huang’s legal problem is only part of the issue. The company’s corporate governance is sub-optimal, for instance. But there are a couple of things that give us confidence. For one, the potential upside to the deal is huge. It’s rare that one would have an opportunity to invest in a market leader in China with meaningful governance rights. For another, the company still has an opportunity to both expand and improve operations. Though it has about 1,300 stores, it hasn’t penetrated second-tier cities, and certainly hasn’t penetrated third- or fourth-tier cities. So there is an opportunity for new store expansion. Historically, GOME has focused on purchasing scale, and there is room for operational improvement such as cutting costs and improving customer service. Bain has plenty of expertise in retail and we hope to bring that to bear. We’ll get together with the management and outside consultants to identify areas to focus on initially.

Huang is still the largest shareholder of GOME. How do you go about running the company given the investigation of him?
We have not talked to Huang, and I don’t know how he thinks about our investment. We are not taking an adversary stance against Huang. He is a shareholder, and we are a shareholder, too. We hope he recognizes what we do and the value-enhancing capability we bring. He has already resigned from GOME, and is not expected to be involved in the company...

Bain Capital's Orit Gadiesh wrote a great little book Lessons From Private Equity, click here to read my review.

Tags: private equity bain capital, Bain Capital LLC, Huang Guangyu, GOME Electronics Holding, Huang Guangyu GOME, Bain Capital Holdings, Bain Capital Buyout China

Endowment Private Equity

2009-07-13T15:17:00.006-04:00

Endowment Private Equity

Endowments and Private Equity Commitments

For the last few months, the only stories about private equity and universities have been about colleges taking their endowment funds out of alternative assets because of some major losses. This push away from investing in private equity may be difficult as many college endowments still have capital commitments to private equity funds. For example, the University of Virginia considers doubling its investment in private equity.

University of Virginia Investment Management Co. is obligated to fulfill its commitments of about $2 billion to various fund managers over the next 6 years. The University of Virginia's holdings took a drubbing from investments in alternative assets, from July to May of 2008 the university's $4 billion met with a 22 percent decline. The schools have little choice in their contractual capital commitments to private equity funds although they may be more anxious about investing in alternative assets.

Unfunded capital commitments range from 20 percent to 40 percent of the wealthiest college funds with more than $1 billion in assets, according to John Nelson, an analyst at Moody’s Investors Service in New York. Institutions such as endowments and pensions funds typically agree upfront to invest a set amount with asset managers over a period of years. Not all commitments are called by managers.

Endowment funds do have reason to be hesitant, Commonfund Institute figures that U.S. endowments dropped 24% over the last 6 months of 2008. However, Yale’s endowment fund manager David Swensen, the top-ranked college endowment manager in the past decade. He improved long-term returns by removing holdings of stocks and bonds and buying more real estate, private equity and hedge funds. His model has been photocopied by a strategy that has been copied by colleges nationwide. The strategy is based on the idea that alternative assets outperform even the best traditional investment firms.

Endowments at U.S. and Canadian schools gained an average of 6.5 percent annually in the decade ended June 30, 2008, according to the Washington-based National Association of College and University Business Officers. Yale, based in New Haven, Connecticut, led the group with a 16.3 percent average annual return.

Endowments increased their allocations to alternative investments to 51 percent as of Dec. 31 from 46 percent six months earlier, according to a March survey released by Commonfund Institute.
Read full article

Tags: university endowment fund, endowment fund manager, private equity endowment fund, private equity endowment investments, investments in endowments, college private equity

Private Equity Japan

2009-07-12T10:42:00.000-04:00

Private Equity Japan

Private Equity Investment in Japan

Japan has one of the largest economies in the world, a 2007 estimate places its GDP at more than $4 trillion. But the Japanese economy has been hurt by the global credit crunch and is shrinking at an alarming rate. In a tough economy, many private equity firms have fled Tokyo and deal numbers have declined considerably.

Richard Folmer works with Advantage Partners, a veteran private equity group investing in Japan. Mr. Folmer offers his optimistic take on private equity in Japan in a recent interview. Private equity is a relatively new sector in Japan; a rule change in 1997 allowed private equity firms to work in the nation. Folmer estimates that only about 3-4 of mergers and acquisitions in Japan involve private equity groups. He points out that although this may seem insignificant, Germany and the United States private equity activity was similarly small at this stage in development.

Mr. Folmer expects that private equity deals will pick up in Japan--maybe by as much as 10-20% over the next 10 years. He speaks more with Summit Notebook:

But he is not just talking theoretically. After the financial crisis made deals hard to value, he sees increasing pressure for hard-hit companies to sell non-core assets as competition increases pressure on them to raise cash to invest in their core businesses.

If they are not getting it from earnings and not getting it from the credit markets, that leaves them looking at divestments, he told the Reuters Japan Investment Summit. By his math, such deals as larger companies sell non-core units make up a third to a half of fund buyouts in Japan, but he sees potential growth in other areas too.

One of those goes directly to a big problem in Japan — a rapidly ageing population. “There are a lot of founder-owned businesses that were founded in the 60s, 70s and 80s where the owners are now in their 60s, 70s and 80s,” he says. Folsom says his firm is looking at 40 to 50 possible deals a quarter, most of them generated internally and a valuation gap — where asset sellers wanted to capture the prices they could have before the financial crisis — is closing.

Tags: private equity japan, private equity japanese, private equity investment in japan, private equity tokyo, private equity investment in tokyo

Structuring Private Equity Deals

2009-07-11T03:20:00.000-04:00

Structuring Private Equity Deals

How Private Equity Deals are Structured Today

The credit crunch has had a major impact on the way private equity deals are structured. In the following video, Jones Day partner Brette Simon gives her take on private equity deal structure and the debt She talks about the innovative ways that private equity firms are financing deals, notably the "equity buyout" (EBO). These deals are executed with the hope that the deal can be refinanced in a year when hopefully the firm can get refinancing as the credit crisis thaws.

Tags: private equity credit crunch, private equity deal structure, private equity deal financing, private equity credit, private equity deal structuring, how to structure private equity deals, equity buyout

Private Equity Music

2009-07-10T08:21:00.000-04:00

Private Equity Music

Private Equity Firm KKR Will Invest in Music Rights

The music business has been suffering with record sales down and more consumers turning to pirating music through websites like Napster. When Terra Firma made a $5 billion purchase of music company, EMI Group, onlookers wondered whether it was such a good idea. As it turned out, the bad economy combined with a difficult industry led Terra Firma to report nearly $2 billion losses on EMI earlier this year.

Music companies present a tempting target for private equity firms, many believing that they can turn around failing record companies with restructuring by cutting costs sometimes jobs. However, as Terra Firma found, the demand for purchasing music simply might not be there and the recession has not helped album sales--although digital download sales are booming. This may explain why Kohlberg Kravis & Roberts (KKR) have taken a different approach. The private equity firm announced a joint venture to buy and sell music rights, along with German media firm Bertelsmann as its partner.

The two firms plan to obtain a portion or all of an artist's royalties while avoiding the problems with distribution and promotion. This strategy is a way to make money from the recording industry without having a major role in the actual production and marketing of the music--a very hit-or-miss part of the business.

KKR has agreed to put an initial 50 million euros ($69.5 million) into the joint venture--with an additional 200 million euros ($278.5 million) to be invested over the next few years--in exchange for 51% of the equity, while the rest belongs to Bertelsmann, which is contributing its own music rights management business for 49%. The unit manages the rights to artists such as Kylie Minogue and Roy Orbison, and in total has about 300 contracts signed with songwriters and other rights holders across Western Europe. One aim of the KKR deal will be to expand into the United States, according to a Bertelsmann representative.

Aspesi said that KKR and Bertelsmann would be well-positioned to buy catalogs of rights from myriad distressed sellers in the industry, which could include Terra Firma's EMI. With traditional music distribution still under pressure and potentially years away from recovery, labels are looking for assets to sell. Meanwhile, those who hold the rights to music stand to reap the benefits of the proliferation of online music stores and content-streaming Web sites.
Read More...

Tags: KKR music industry, KKR music rights, KKR investments, KKR Bertelsmann, Kohlberg Kravis Roberts music

Initial Public Offer

2009-07-09T02:33:00.000-04:00

Initial Public Offer

The Pros and Cons of an Initial Public Offering

When a company is taken private by a buyout firm, the end-goal is to hold a successful initial public offering. Although the company may be sold to another private equity group, merge with another company or be acquired by another firm, most buyout firms favor the IPO exit. As the initial public offering may be returning as a popular exit for buyout firms, it seems that this will always be the favored exit strategy used by private equity firms. The following is a look at the pros and cons of an initial public offering.

Benefits of An Initial Public Offering

More Capital. An initial public offering allows a firm to raise significant capital. Many firms choose to hold an IPO to fund future expansion of their business. It may also provide a firm with the necessary cash to survive until the product or service is launched successfully.
Greater Stability. Being listed as a public company may bring a stronger reputation in the business world. Investors and potential business partners may be more likely to work with a public company because it requires stability and increased accountability.
Obtaining loans. Some lenders may be more likely to give a loan to a public company than a firm held by a private equity firm. Similarly, debt rating agencies may improve the company's score because it goes public.
Greater liquidity. One of the biggest benefits of an IPO is the liquidity it brings. Management with a stake in the firm and private equity investors can now sell shares to new investors. However, they are often prevented from selling for a "lock-up" period, usually about 6 months.
Management Talent. One typical way of compensating executives is through stock options and an IPO permits a firm to offer shares in the company in addition to salary. This is a great bargaining chip for getting talented management when the cash available for salaries isn't high enough.
Mergers and Acquisitions. A firm hoping to finance a merger or acquisition deal can use the funds raised by selling shares to the public.

Now, we can look at the downside to an initial public offering. The biggest drawback is simply the expense associated with an IPO.

Downside to an Initial Public Offering

Cost. According to Private Equity: History, Governance and Operations the cost of an initial public offering "can be in excess of 10 percent of the overall IPO offering amount." This is a significant expense that should be included when considering an IPO. The costs come from the management publicizing the company and putting together to prospectus; paying underwriters (could be as high as 7% of the offering); and paying legal and filing fees required for going public.
The SEC. By selling shares to the public, a company is required to register with the Securities and Exchange Commission. Whereas the company had more leeway in its private days, it must now abide by laws and regulations demanded by the SEC. Ensuring the company is in compliance with the laws requires a lot of time and money. The company must draft documents it never had to before, like quarterly statements, and putting together a board of directors.
Listening to Shareholders. Sometimes an idea or goal for the business may not benefit the shareholder in the short-term but it would be better for the company in the long-term. These types of ideas are often shot down by shareholders that won't tolerate the risk and don't want to see their stock value drop. Shareholders also have a say in compensation for executives and the influence of the public may also play a role in deciding who gets paid what.
Answering to the Public. Private companies don't have to deal with satisfying all its shareholders and their sometimes tiring inqueries. A public company needs to meet with Wall Street analysts and shareholders who rightfully want to know more about the company they are invested in, or considering investing in.

You may also be interested in reading about the possible return of initial public offering in 2009

Tags: initial public offer, initial public offering, what is an initial public offering, initial public offering private equity, IPO, IPO company, company initial public offering, initial public offering process

Alternative Real Estate Investment

2009-07-09T01:45:00.000-04:00

Alternative Real Estate Investment

Areas of Alternative Real Estate Investment

Private Equity Info looked at institutional investors with a specific focus in real estate and separated them by the type of real estate they invest in. Those included in the module are: real estate investment trusts (REITs), real estate-focused private equity firms, hedge funds and other institutions that are active debt or equity investors in the real estate market. The following is the results of this data module and shows what are the most popular real estate investments:

Real Estate Investment Interest
Investment Focus	Firm Count	% of Data Module
Office	316	44%
Retail	315	44%
Residential	290	41%
Industrial	198	28%
Hospitality	133	19%
Other	118	17%
Financial Securities	102	14%
Raw Land	99	14%
Healthcare	54	8%

The latest Private Equity Blogger article on Private Equity Real Estate is Real Estate Private Equity Capital
To read more about Private Equity Real Estate please see Private Equity Real Estate Investment.
For a list of Private Equity Real Estate firms please see Largest Private Equity Real Estate Firms

Tags: private equity real estate, alternative real estate investors, alternative real estate investment, alternative investors in real estate, data private equity real estate, real estate buyouts

Private Equity Clean Energy

2009-07-09T00:41:00.000-04:00

Private Equity Clean Energy

Private Equity Outlook on Clean Energy

In the following video attendees to the Private Equity and Venture Capital Clean Energy Investor Forum discuss the future of clean energy. Investors seem very excited about the opportunities in clean energy investments but admitted that it is currently a high-risk area. A limited partner concludes "definitely now is the time to buy, not to wait."

Tags: Private equity renewable energy, private equity clean energy, private equity clean energy investment, private equity clean tech, private equity environment, private equity climate

Private Equity Fund Raising

2009-07-08T13:37:00.005-04:00

Private Equity Fund Raising

Private Equity Fund Raising Drops 64% from 2008

The word "plummets" has been used repeatedly to describe the latest results from a report on private equity fundraising. During the first half of this year 173 private equity funds rounded up $54.9 billion, a far cry from the $152.7 billion that 261 funds raised during the same time period in 2008. This marks a 64% decline year-over-year.

Private-equity firms continue to struggle to raise funds as the recession wears on, according to a report today in the Dow Jones Private Equity Analyst newsletter.

During the first six months of 2009, 173 private-equity funds raised $54.9 billion, down from the $152.7 billion raised by 261 funds during the first half of 2008, representing a 64% decline, the report said. Institutional and individual investors are turning away from the asset class hoping for safer but smaller returns from traditional investments.

Some are even selling off their current capital commitments in the secondary market. Secondary funds are pooling their own capital to buy shares in private equity funds--stakes that some limited partners can't wait to sell off, often for a loss. In contrast to the low fundraising numbers for private equity funds, 18 secondary funds accumulated $13.9 billion, a new annual record.

The venture capital fundraising industry was especially hurt with a 63% drop.

“LPs have been cautious about all illiquid asset classes since Lehman collapsed in September,” said Kelly DePonte, partner at placement agent Probitas Partners Inc. “Many LPs we talked to said as early as last December that they planned to sit on the sidelines through the second quarter, and that is exactly what we have seen.”

Read More...

To learn about private equity activity for the first half of 2009, read Private Equity Activity 2009
To read about venture capital fund raising in 2009, check out Venture Capital Fund Raising

Tags: Private equity fund raising, private equity funds, private equity fundraising, private equity data, private equity news, venture capital fund raising

Buyout Future

2009-07-08T13:30:00.000-04:00

Buyout Future

Panel Considers the Future of Buyouts

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.

Tags: private equity regulation, private equity investors, private equity limited partners, private equity funds, private equity general partners, private equity industry, video

Real Estate Private Equity Capital

2009-07-07T21:53:00.005-04:00

Real Estate Private Equity Capital

Private Equity Real Estate Funds Can't Raise Capital

Fundraising by private equity firms focused in real estate has hit a 5-year low in the second quarter of 2009. The decline reflects nervous investors worrying that real estate values will wii continue to slide. Sixteen funds investing in real estate raised just $8.9 billion, the lowest since the Q3 2004.

Alternative asset research firm Preqin concluded, "With many investors still unable to commit new capital, and with other investors more cautious towards the market following significant write-downs in value for existing investments, fund-raising will remain an extremely challenging task in 2009."

Fund-raisers have also lowered their targets by $28 billion over the past three months, and in some cases have shelved or abandoned their funds altogether. So far this year, 36 real estate funds have been abandoned or put on hold, compared with 25 funds in all of 2008, the report said.
Funds focused on Europe represented the biggest group in terms of value raised, with five funds raising a total of $5.3 billion. That's down from 12 funds and $9.2 billion a year earlier. About 3.1 billion euros ($4.32 billion) of that was attributed to the Blackstone Real Estate Partners Europe III, the largest fund to close so far this year, Preqin said. Nine funds focused on the United States raised $3.2 billion, paling in comparison to the 31 funds that raised $17.5 billion in the 2008 second quarter.
Read more...

To read more about Private Equity Real Estate please see Private Equity Real Estate Investment.
For a list of Private Equity Real Estate firms please see Largest Private Equity Real Estate Firms

Tags: private equity real estate firms, private equity real estate, private equity real estate funds, private equity real estate investments, private equity real estate management, real estate buyout funds

Marc Andreessen Fund

2009-07-07T21:28:00.006-04:00

Marc Andreessen Fund

Marc Andreessen Launches Venture Capital Fund

One of this weeks big stories is Marc Andreesen's new venture capital fund. He appeared in stories from Businessweek to the New York Times, all the kind of publicity a new fund would want and Mr. Andreessen deserves it. He got his start as a leading software engineer who co-authored the web browser Mosaic and co-founded Netscape Communications Corporation with Ben Horowitz. He then formed LoudCloud which was acquired by HP.

His latest success is the website Ning, which allows users to create their own social networks. He also had the good sense to invest in Twitter. Now, Andreessen and Horowitz are teaming up once again to launch a venture capital fund. The fund, eponymously named Andreessen Horowitz, officially launched July 6, 2009 with $300 million.

Andreessen has made his mark again and again, becoming well-known for having a great eye for "the next big thing." Not only does he have a stake in Twitter, he sits on the advisory board of Facebook and regularly consults with the CEO's at both firms. CNN Money adds that "He is co-founder and chairman of Ning, a service that lets people create their own niche social networks, like 50 Cent's ThisIs50.com. Ning, co-founded with CEO Gina Bianchini, adds 2.5 million members a month. Andreessen owns stakes in Digg, LinkedIn, and Will Ferrell's Funny or Die comedy site. He recently joined the board of eBay (EBAY, Fortune 500) to help that company turn around."

As Andreessen's new fund launches everyone is wondering whether his hot streak will last. Here is a video of Marc Andreessen talking on his new venture capital fund with Ben Horowitz

Tags: marc andreesen, marc andreessen, marc andreessen fund, marc andreessen blog, marc andreessen mosaic, marc andreessen ning, marc andreessen biography, andreessen net worth, Ben Horowitz

Single Owner Private Equity Firm

2009-07-07T13:34:00.004-04:00

Single Owner Private Equity Firm

The Possible Risks of a Single Owner Firm

If you're working for a single-owner private equity firm, you may be a little worried if you read the Private Equiteer's post on the problems with this type of management. Basically, the post is an argument that a single-owner private equity group is typically run by an authoritative and stubborn person who does not receive the help that is essential for running a private equity shop. It's extraordinary for one person to possess a deep knowledge in all aspects of running a firm such as legal issues, the deal-making process, accounting, business strategy and management. This conclusion caused one reader to lament "I wish you had written this before I accepted my job offer."

However, all is not lost. A single-owner firm may be a poorly-managed dictatorial mess, with one person at the helm steering straight for disaster. But this is by no means always the case. The owner probably does not possess all the necessary skills, so he delegates other duties to specialized employees or outsources it to service providers. For the reader worrying his/her new boss is a closet-Stalin, I wouldn't be too scared. The following pitfalls of single-manager private equity firms should be considered when applying for a position or deciding whether to work with such a firm, but take it with a grain of salt. Here is Private Equiteer's paraphrased list of problems:

They’re a textbook example of a dictatorship – One person never has all the answers, but don't try telling that to the manager. A one-manager firm means that "all of their emotions, persuasions and biases has carte blanche over every major decision." And these are important choices like hiring new staff (whose agreement with the manager's style may take precedence over talent), heading due diligence and choosing where to invest.
Key-man risk is a repellent - Many private equity investors, target companies, staff, lenders and consultants see the risk of a single-owner firm and will steer clear. According the the Equiteer, "LPs will give a wide berth because there’s increased risk borne by having only one decision maker. Investees will do the same because there is often less value-add from a less experienced team. And staff, if they know better, will steer clear because a dictatorship is not the best place to learn."
There is fundamental risk to the fund – One great point as to the risk in such a firm is that if the manager is incapacitated in some way (i.e. illness, insanity, etc.) the fund may collapse if there is no one qualified to take the lead in his absense. Firms headed by multiple partners have the ability to shift the burden to another manager if one leaves.
They circumvent necessary checks and balances - Without anyone to check on the owner's decisions, save his limited partners--who may be unaware of what's really going on at the firm--a owner has free reign to implement any number of stupid ideas. In multi-owner firms there is a system of checks and balances to ensure that no one person can endanger the firm with a poorly conceived plan.
The arrangement is often a sign of the owner’s character – "[Equiteer's] experience is that single-owner firms are single-owner for a reason: the owner finds it hard to compromise and deal (closely) with other people."
Management fees are squandered to profit the owner - "with a single owner, there is a real conflict regarding management fees. 'Do I spend $x on business tools or tell staff to make do and save the money for dividend time?' Of course this could happen in multi-owner firms, but chances are they’ll keep each other honest. And, having multiple people with a financial interest in the management company will increase the chances that fees are put to good use."

Do you run a single-owner private equity firm; do you work for one? Send me an e-mail with your experience at Theo@peblogger.com

Tags: private equity firm, single owner private equity firm, single owner buyout firm, single manager buyout firm, single partner buyout firm, private equity firms risk

Harris Williams & Co

2009-07-07T07:36:00.000-04:00

Harris Williams & Co

Harris Williams & Co Interview on Mid-Market Deals

Harris Williams' co-founder Hilter Harris is hoping the latter half of 2009 will be a rebound in mid-market Mergers and Acquisitions dealflow. In the following interview with the Deal, Mr. Harris explains what factors have his firm optimistic about the second half of this year.

Tags: middle market mergers and acquisitions, mid-market mergers and acquisitions, middle market deals, harris williams and co., hilter harris, harris williams and company.

General Partner Fees

2009-07-06T20:59:00.000-04:00

General Partner Fees

Investors Pushing to Lower General Partners' Fees

Private equity general partners and limited partners have usually seen each other as equals, as a LP needs a GP to grow its capital and a GP needs an LP's capital for investments. However, the uncertainty of the market has shifted that balance of power in the limited partners' favor. Now, general partners are having a hard time attracting investors and limited partners are taking full advantage of their position. According to a survey conducted by Preqin Ltd., "43% of investors noted a power shift from fund to limited partner, with only 2% seeing a shift toward the general partner."

Top quartile buyout firms have never had trouble finding investors and usually they have the privilege of dictating the deal by their terms. But now that buyout groups reported a 31% fall in the worth of their holdings last year, even the big buyouts are encountering resistance from their investors. The recent trend toward cutting general partners' management fees is a significant cut for buyouts. A 2007 study by University of Pennsylvania's Wharton School found that "Even before the LBO boom ended, firms earned almost twice as much from what they charged clients than from the gains they received from selling companies."

The industry has kept the average management fee at about 2% of assets under management for many years until 2008. Now, new private equity funds are charging closer to 1.8% and funds managing more than $1 billion are likely to charge just 1.65%, according to Preqin. Buyout managers use these fees to pay for operating expenses and skim an additional 20% from any profits generated through the investments.

There is certainly a call for lower fees by investors throughout the buyout world, as a Coller Capital survey found, "four of every five investors in Europe and North America plan to request better terms over the next two year." Pension funds have seen the private equity investments in their portfolio lose value during the last two years and have led the push for limiting fees. The California Public Employees' Retirement System has seen the value of its holdings slide by about 29%. Pension funds could justify paying the traditional 2 and 20 fee structure when returns were strong but now they are questioning it.

“When returns are bad, people just stop giving funds money,” said Steven Kaplan, a professor at the University of Chicago Booth School of Business. “They’ll pay fees in the long run, but only to the good funds.”

The industry points to long-term performance to justify the compensation. In the five years ended Dec. 31, LBO funds generated annual returns of 25 percent, according to Preqin data. The Standard & Poor’s 500 Index fell 2.2 percent a year on average during the same period, including reinvested dividends, and the MSCI World Index was unchanged.

“There’s going to be much greater focus on justification of management fee levels,” said Joseph Dear, chief investment officer at Sacramento-based Calpers, in an interview last week at the Geneva conference.

Calpers has about 11.5 percent of its $184.6 billion under management in private equity funds. Returns from those investments with outside firms, including Blackstone and Carlyle, dropped to 5.8 percent in the 12 months ended June 2008 from 23.2 percent in the previous year.
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Tags: Private equity general partner fees, general partner fees, partners fees, GP buyout fees, LBO fees, LBO expenses, LBO management fees, buyout fees, private equity fund management fees

FDIC Bank Rules

2009-07-06T18:13:00.004-04:00

FDIC Bank Rules

Dan Primack on the FDIC Rules and Private Equity

Following up with our coverage of the FDIC and private equity firms negotiations. Private equity groups are trying to back banks but the recently proposed FDIC guidelines have been met with stiff opposition from the private equity industry. Dan Primack of peHUB offers some insight into the forum where buyout firms and the FDIC are debating the proposal. Dan does not think that private equity firms will accept the current terms, saying the guidelines are "all stick, no carrot" for buyout firms. Here is the video:

Tags: Private equity bank rules, private equity fdic bank, private equity bank, private equity rules and regulations, fdic bank rules, buyout fdic, buyouts banks, private equity investment banks, dan primack fdic

Independent Directors for Private Equity Funds

2009-07-06T02:37:00.002-04:00

Independent Directors for Funds

Below is a short article on how some pension funds in the UK are asking hedge funds and private equity funds to have strong independent boards to look out on behalf of investors. I think that this is a growing trend and hundreds of additional institutional investors and family offices will be demanding this from hedge fund and private equity firms which they invest in.

Universities Superannuation Scheme, the second largest UK pension fund, is calling for hedge funds to appoint more independent directors to protect the interests of investors.

The USS plans to invest about £1.25bn in 25 single-manager hedge funds in the next two years as part of a strategy to double its allocation to alternative assets to 20 per cent. Currently, its only exposure to hedge funds is a £200m investment in replication strategies operated by State Street and Switzerland’s Partners Group. Read more...

Related to Independent Directors for Hedge Funds

Tags: Independent Directors, Private Equity Fund Independent Directors, independent director of a private equity, independent board for a private equity firm

Venture Capital Fund Raising

2009-07-04T14:02:00.001-04:00

Venture Capital Fund Raising

Venture Capital Fund Raising Falls 63%

Fundraising by venture capital firms dropped all of 63% in the first half of this year compared to the first 6 months of 2008. Investors remain skiddish about forking over their money to venture funds during an uncertain economy. Venture firms were able to raise just $5.1 billion across 52 funds, a downward slide from the $13.6 raised by 115 funds in 2008.

“LPs have been cautious about all illiquid asset classes since Lehman collapsed in September,” said Kelly DePonte, partner at placement agent Probitas Partners Inc. “Many LPs we talked to said as early as last December that they planned to sit on the sidelines through the second quarter, and that is exactly what we have seen.”

The venture capital industry faces plenty of questions as it deals with a moribund exit market and almost 10 years of poor returns. As a result, most venture strategies struggled.

“Venture didn’t cause the current crisis, but it is collateral damage,” DePonte said. “With no liquidity in the market leading to longer holding periods, VCs are much more focused on managing cash burn at current portfolio companies rather than raising new money for new investments.”

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Venture capital firms are hoping that investors will return over the next six months and fundraising can begin to climb out of the hole it's been stuck in for the last year.

Tags: venture capital fundraising, venture capital fund raising, venture capital funds, venture capital raising, venture capital investment, venture capital news

Private Equity in Brazil

2009-07-03T21:29:00.003-04:00

Private Equity in Brazil

Considering Private Equity Investing in Brazil

As the American economy has tanked this year, Brazil's financial markets have demonstrated strength despite the global credit crunch. Equally encouraging is the enthusiasm for private equity and venture capital in the country. Private equity has the potential to play a huge role in Brazil's economy as only 500 of the nation's 12 million companies are publicly traded.

With such a huge pool of private companies, it's no wonder that investors are favoring the country more and more. In a 2009 survey by the Emerging Markets Private Equity Association (EMPEA) asking limited partners about their plans for investing in emerging markets, Brazil was rated the second most attractive place for investment. According to the survey, Brazil is set to receive the largest boost in net investors over the next 1 or 2 years. 17% of current emerging markets investors expect to increase their holdings in the country and 11% plan to enter the market for the first time.

One reason that Brazil's private equity industry has been less vulnerable than others is because it does not rely heavily on leverage. So, when the credit market dissolved, Brazillian private equity firms were already used to executing deals with little-to-no leverage. Further evidence for the huge potential in Brazil is that few institutional investors are investing with private equity firms, leaving a largely untapped pool of capital. Currently, Brazilian pensions funds only put 2% of their money in private equity well below the global average (8 to 10%).

The recession has also led regulators to lower Brazil's interest rate to a historic low of 9.25%. Steve Rubens of Seeking Alpha thinks this could inspire investors to move away from fixed income investments toward alternative assets. He believes that two forces are working in the private equity industry's favor, "The first is an increasingly favorable regulatory and business environment and the second is a diversity and abundance of investment opportunities appropriate for private financing."

To read more about Private Equity investment in Brazil, please see Brazil Private Equity and to read about the Future of Brazilian Markets

Tags: Brazil Private Equity Investment, Brazil Private Equity, Private Equity in Brazil, Emerging Market Brazil, Brazilian private equity, Brazil Private Equity

Private Equity Activity 2009

2009-07-03T00:04:00.016-04:00

Private Equity Activity 2009

Mid-Year Data for Private Equity Activity in 2009

PitchBook, a private equity-focused research firm, has published its report on private equity as of the second quarter of 2009. The findings show that private equity investors continue to wait before deploying their $400 billion in available capital.

The industry appears to be rethinking the leveraged buyout and focusing on middle-market private equity deals, financed with mostly equity and little borrowing. PitchBook CEO, John Gabbert says of the report, “PitchBook’s analysis shows that the private equity industry is currently shifting gears in a return to its roots. More attention is being paid to middle-market deals using a healthier amount of equity where private equity’s operational and financial expertise can make a big difference. ”

Total Amount Invested in PE Deal Type ($M)

BlankClick the image for a better view

Key Findings from the 2009 Mid-Year Report

The first half of 2009 was the slowest six-month investment period since 2002 with only 407 completed investments, and just 174 of those were completed in the second quarter. However, another 44 deals, totaling $6.5 billion were announced during the quarter but have yet to close.

In response to the current credit markets private equity investors have been using less leverage and targeting smaller operational improvement and distressed company investments. These lower and middle-market companies now account for 70% of all investments. PE firms are also strengthening their current portfolio companies through add-on acquisitions, which accounted for 43% of all buyouts in the first half of 2009.

In Q2 2009 only the Business Products & Services and Information Technology industries were able to maintain their investment levels from the first quarter, with 54 and 29 deals respectively.

The BankUnited Financial acquisition was the largest of the quarter and accounted for over 25% of the total invested capital for the quarter.

The decrease in private equity investment is not due to a lack of available capital, which remains at an all time high of $400 billion. PE investors continue to raise capital and currently have enough dry powder to more than support the combined deal activity of 2004, 2005 and 2006 with the use of moderate leverage.

So half-way through 2009 private equity is still in a slump and investors are holding onto about $400 billion in capital.

Tags: buyout 2009, buyout pitchbook data, private equity activity 2009, private equity 2009 data, information on private equity, private equity report 2009 Q2