MODELING PRIVATE EQUITY FUNDS AND PRIVATE EQUITY COLLATERALISED FUND OBLIGATIONS

2004 ◽  
Vol 07 (03) ◽  
pp. 193-230 ◽  
Author(s):  
Etienne de Malherbe
Keyword(s):  
Private Equity ◽  
Investment Horizon ◽  
Bessel Processes ◽  
Fund Managers ◽  
Investment Value ◽  
Equity Funds ◽  
Private Equity Funds ◽  
Three Stages ◽  
The Individual ◽  
Managed Funds

The recent development of the securitisation of funds of private equity funds poses the question of the individual and joint modelling of the underlying funds. Private equity funds are different from other managed funds because of their particular bounded life cycle: when the fund starts, the investment partners make an initial capital commitment, the fund managers gradually draw down the committed capital into investments, returns and proceeds are distributed as the investments are realised and the fund is eventually liquidated as the final investment horizon is reached. Modelling private equity funds therefore requires three stages: the modelling of the commitment drawdowns, the modelling of the investment value and the modelling of the return repayments. A standard lognormal process is utilised for the dynamics of the investment value. Squared Bessel processes are utilised for the dynamics of the rates of drawdowns and repayments. Résumé: Le récent développement de la titrisation de fonds de fonds de placements privés pose la question de la modélisation individuelle et jointe des fonds sous-jacents. Les fonds de placements privés sont différents des autres sociétés d'investissement à cause de leur cycle de vie particulier et limité: au démarrage du fonds, les associés s'engagent sur un apport initial en capital; puis les gérants du fonds opèrent des tirages progressifs sur le capital apporté pour procéder à des investissements; les revenus et les profits sont distribués à mesure que les investissements sont réalisés; enfin, le fonds est liquidé lorsque l'horizon d'investissement est atteint. La modélisation d'un fonds doit donc se faire en trois étapes: la modélisation des tirages sur l'apport en capital, la modélisation de la valeur des investissements et enfin la modélisation des paiements et remboursements des dividendes et retours sur investissements. Un processus lognormal standard est utilisé pour la dynamique de la valeur des investissements. Des processus de Bessel carré sont utilisés pour la dynamique des taux de tirage et de remboursement.

scholarly journals Creating value in investments with the use of private equity funds

2020 ◽  
pp. 9-20
Author(s):  
Olga Mikołajczyk ◽  
Bartosz Owedyk
Keyword(s):  
Literature Review ◽  
Foreign Language ◽  
Value Creation ◽  
Private Equity ◽  
Investment Value ◽  
Equity Funds ◽  
Private Equity Funds ◽  
Equity Investments ◽  
Language Literature ◽  
Private Equity Investments

The influence of the private equity sector on the contemporary economy is quite significant. This is why the present paper attempts to examine mechanisms private equity investors apply in order to increase the value of their investments. The literature review has identified the most fundamen- tal elements of creating value on the basis of empirical, academic studies that verified hypotheses regarding the influence of particular mechanisms on the process of value creation in private equity investments. This paper is divided into five parts that describe the elements of the investment pro- cess, research into value creation, financial arbitration, as well as direct and indirect mechanisms of creating investment value. The paper is mainly based on the review of foreign-language literature.

Private Equity Fund Performance and Persistency by Fund Type

2014 ◽  
Vol 22 (3) ◽  
pp. 531-564
Author(s):  
IK Song ◽  
Ji Eun Kang ◽  
Chang Hyun Yun
Keyword(s):  
Private Equity ◽  
Fund Performance ◽  
Equity Fund ◽  
Private Equity Fund ◽  
Fund Managers ◽  
Stock Market Performance ◽  
Equity Funds ◽  
Performance Persistency ◽  
Private Equity Funds ◽  
Fund Size

This study investigates the private equity funds’ performances and persistence by fund type. Diversification benefit exists between public equity and private equity and among different types of private equity funds. The net IRR of private equity funds depends on fund type, economic growth, stock market performance, inflation and interest rate. Fund performance was negatively correlated with capital inflow to private equity market and fund size. Fund size and series are positively correlated. Performance persistency exists in private equity fund managers. Fund type is very important factor in analyzing private equity fund performance and persistency.

Mieterhöhungsmaschinen

2018 ◽  
Vol 48 (191) ◽  
Author(s):  
Knut Unger
Keyword(s):  
Real Estate ◽  
Private Equity ◽  
Global Financial Crisis ◽  
Public Offerings ◽  
The Public ◽  
Fund Managers ◽  
Equity Funds ◽  
Private Equity Funds ◽  
The Global Financial Crisis ◽  
Automated Processes

The article describes the development of large listed landlords in Germany (like Vonovia SE) as a specific form of the financialization of housing. Since the end of the 1990s, large stocks of the fordistic and state-socialist housing infrastructures in Germany were sold to Private Equity Funds. After the German recovery from the global financial crisis the fund managers organized the exists through public offerings. Since then a heavy concentration process has taken place that reaches transnational dimensions. The author proposes to call this process “financialized industrialization of corporate housing business”. Integrated into global financial markets and using IT, the public listed real estate companies subjugate trade, facilitation, management, renting and production of housing to standardized financial calculations and automated processes. However, the “real subsumption” of tenants to real estate capital also gives rise to social protests and reclaims.

Private Equity Net Asset Values and Future Cash Flows

2019 ◽  
Vol 95 (1) ◽  
pp. 191-210 ◽  
Author(s):  
Tim Jenkinson ◽  
Wayne R. Landsman ◽  
Brian R. Rountree ◽  
Kazbi Soonawalla
Keyword(s):  
Private Equity ◽  
Fair Value ◽  
Cash Flows ◽  
Systematic Bias ◽  
Private Equity Fund ◽  
Fund Managers ◽  
Asset Values ◽  
Equity Funds ◽  
Private Equity Funds ◽  
Future Cash Flows

ABSTRACT This study analyzes whether fair value estimates of fund net asset values (NAVs) produced by private equity managers are accurate and unbiased predictors of future discounted cash flows (DCFs). We exploit the fact that private equity funds have finite lives to compare reported NAVs to DCFs based on realized cash flows for 384 Venture Capital (VC) funds and 195 Buyout funds spanning 1988–2016. Findings reveal that Buyout funds' NAVs display little systematic bias, but VC funds' NAVs are relatively aggressively biased compared to Buyout funds, especially since 2000. Accuracy is worse in the first half of the sample period even though NAV estimates generally are more conservative. Overall, the results reveal significant differences in the association between NAVs and DCFs for Buyout versus VC funds, which is particularly important for private equity fund investors in their consideration of the relevance and reliability of NAV estimates provided by fund managers.

A Survey on Enterprise Opportunities and Analysis of Technological Startups and Valuation

2020 ◽  
pp. 84-91
Author(s):  
Anandakumar Haldorai ◽  
Arulmurugan Ramu
Keyword(s):  
Venture Capital ◽  
Private Equity ◽  
Darwinian Selection ◽  
Know How ◽  
Investment Value ◽  
Finance Development ◽  
Equity Funds ◽  
Private Equity Funds ◽  
Traditional Approaches ◽  
Start Ups

Enterprise technological start-ups represent the newly created firms with the possibility to rapidly develop and assume liquidity in the next few decades. The main purpose of this mode of expansion is to enhance finance development over considerably limited collateralizable fiscal assets. However, this is considered unattractive from the ancient banking corporations which have now been replaced by more sophisticated and specialized intermediaries such as the private equity funds or the venture capital that diversify business portfolios in reference to their strategies on multi-annual exit with firm projected increment in investment value that endured the Darwinian selection. In that regard, this paper conducts evaluation of firms and reviews their technological start-ups following traditional approaches, flanked based on certain elements derived from multiple-exit methods and varied probabilistic scenarios. The technological footprints showcase the evaluation analogies with know-how, intangibles and patents that are connected to certain sectors.

The Private Equity Fund

2020 ◽  
pp. 40-106
Author(s):  
John Gilligan ◽  
Mike Wright
Keyword(s):  
Private Equity ◽  
Insurance Companies ◽  
Equity Fund ◽  
Investment Funds ◽  
Sovereign Wealth Funds ◽  
Private Equity Fund ◽  
Fund Managers ◽  
Limited Life ◽  
Equity Funds ◽  
Private Equity Funds

This chapter discusses private equity funds. It looks at the typical fund structures, who invests in private equity, and compares and contrasts alternative investment options. A private equity fund is a form of ‘investment club’ in which the principal investors are institutional investors, such as pension funds, investment funds, endowment funds, insurance companies, banks, sovereign wealth funds, family offices/high net worth individuals and funds of funds, as well as the private equity fund managers themselves. Private equity funds have a limited life, meaning that there is a pre-agreed date on which they will stop making new investments and subsequently be wound up. Typically, a fund invests in new projects for six years and is wound up in ten years. There is a standard extension period of two years in most fund agreements, hence they are generally known as ‘ten plus two’ limited life funds. In the past few years, some longer-term funds have started to be raised by some fund managers. These are typically targeting growth capital. The chapter then differentiates limited partners (external investors) from the general partner (the manager). It also studies the economics of private equity, examines the details of a representative Limited Partners Agreement as well as taxation, and describes the secondary fund market.

Doing A Deal

2020 ◽  
pp. 135-170
Author(s):  
John Gilligan ◽  
Mike Wright
Keyword(s):  
Private Equity ◽  
Equity Market ◽  
Equity Funds ◽  
Target Company ◽  
Private Equity Funds ◽  
Three Stages ◽  
Investment Agreement ◽  
Key Terms ◽  
Two Sides ◽  
Binding Agreement

This chapter details the process of a private equity transaction. There are two sides to every corporate transaction: those acting with or for the purchaser and those acting with or for the owners of the target company, the shareholders. Private equity funds outsource many functions. The chapter looks at the advisory relationships at three stages of an asset’s ownership cycle: acquisition of the target company, during the ownership life, and finally at disposal. It considers both what the advisers are doing and the incentives that this creates in the broader private equity market, particularly focusing on reciprocity. The chapter also examines the auction process that lies at the heart of many private equity deals. The key contracts in a private equity deal include the Articles of Association, the Investment Agreement, and the Sale and Purchase Agreement. The chapter then describes the Heads of Terms, which is a non-binding agreement that sets out the key terms of the deal prior to starting to draft the formal contracts.

Equilibrium liquidity premia of private equity funds

2016 ◽  
Vol 17 (1) ◽  
pp. 110-128
Author(s):  
Axel Buchner
Keyword(s):  
Private Equity ◽  
Liquidity Shocks ◽  
Content Type ◽  
Fund Managers ◽  
Asset Value ◽  
Equity Funds ◽  
Novel Theory ◽  
Private Equity Funds ◽  
Liquidity Premia ◽  
The Impact

Purpose – The purpose of this paper is to propose a novel theory of the equilibrium liquidity premia of private equity funds and explore its asset-pricing implications. Design/methodology/approach – The theory assumes that investors are exposed to the risk of facing surprise liquidity shocks, which upon arrival force them to liquidate their positions on the secondary private equity markets at some stochastic discount to the fund’s current net asset value. Assuming a competitive market where fund managers capture all rents from managing the funds and investors just break even on their positions, liquidity premia are defined as the risk-adjusted excess returns that fund managers must generate to compensate investors for the costs of illiquidity. The model is calibrated to data of buyout funds and is illustrated by using numerical simulations. Findings – The model analysis generates a rich set of novel implications. These concern how fund characteristics affect liquidity premia, the role of the investors’ propensities of liquidity shocks in determining liquidity premia and the impact of market conditions and cycles on liquidity premia. Originality/value – This is the first paper that derives liquidity premia of private equity funds in an equilibrium setting in which investors are exposed to the risk of facing surprise liquidity shocks.

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