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.

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.

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.

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.

Industry-Wise Investment Pattern of Select Private Equity Funds in India

2018 ◽  
Keyword(s):  
Financial Services ◽  
Private Equity ◽  
Equity Fund ◽  
Equity Investment ◽  
Private Equity Fund ◽  
Investment Pattern ◽  
Equity Funds ◽  
Private Equity Funds ◽  
Indispensable Tool

The article is an analysis of Private Equity investment deal values across 24 industries by select Private Equity funds from 2007–2016. The purpose of the research is to identify any patterns of movement of deal values. The study established the growth rate of deal values and observed the performance of each Private Equity fund throughout the 10-year period. The purpose of the study is to determine the significance of Private Equity investment for the promotion, growth, and development of industries. In the case of heavy industries such as Energy, Engineering and Construction and Manufacturing, Private Equity investment becomes inevitable, at least as a supplement to government funding. Due to rising disposable income and purchasing power of people, industries such as BFSI (Banking, Financial Services, and Insurance) Retail, and other services such as Travel, Transport, and Telecom are also attracting considerable Private Equity. The role of Private Equity as an indispensable tool for industrialization is emerging and becoming dynamic. Furthermore, the government’s go-ahead attitude towards reforms is further boosting Private Equity investment’s opportunities and impact on India’s economic development.

The Private Equity Market

2020 ◽  
pp. 1-39
Author(s):  
John Gilligan ◽  
Mike Wright
Keyword(s):  
Private Equity ◽  
Early Stage ◽  
Equity Market ◽  
Capital Investments ◽  
Risk Capital ◽  
Equity Fund ◽  
Public Markets ◽  
Private Equity Fund ◽  
Fund Managers ◽  
Equity Funds

This chapter defines private equity, describes the origins of the private equity market, and examines the data on the size and growth of the private equity industry. Private equity is risk capital provided outside the public markets. The businesses invested in by private equity range from early stage ventures, usually termed venture capital investments, through businesses requiring growth or development capital to the purchase of an established business in a management buyout or buy-in. Much, but not all, of the investing done in the private equity market is by private equity funds. The objective of a private equity fund is to invest equity or risk capital in a portfolio of private companies which are identified and researched by the private equity fund managers. The chapter then considers what private equity fund managers do. It also provides a brief history of private equity before assessing how big the private equity market is.

scholarly journals ASSESSMENT OF THE INVESTMENT PROJECT EFFECTIVENESS FOR THE ACQUISITION OF COMPANIES BY THE DIRECT INVESTMENT FUND

2020 ◽  
pp. 164-171
Author(s):  
G. G. Utenov
Keyword(s):  
High Performance ◽  
Private Equity ◽  
Investment Project ◽  
Operational Efficiency ◽  
Investment Fund ◽  
Investment Projects ◽  
Private Equity Fund ◽  
Equity Funds ◽  
Private Equity Funds ◽  
The Impact

The performance of investment projects in acquisitions of companies by private equity funds has been explored by assessing the financial and valuation results of such transactions in two directions: change in the valuation multiple of an acquired company over the period of the investment project and the impact of a fund on a company’s operational efficiency. As a result of the analysis, the hypothesis of the higher EV/EBITDA exit multiple of the private equity fund compared to the same entry multiple was not confirmed. However, the hypothesis that private equity funds are able to increase the operational efficiency of portfolio companies on average better than other types of investors, confirms the effectiveness of private equity funds and high performance of such investment projects.

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.

SEC targets broker-dealer implications of transaction-based deal fees

2016 ◽  
Vol 17 (4) ◽  
pp. 75-76
Author(s):  
Jason Daniel
Keyword(s):  
Private Equity ◽  
Securities And Exchange Commission ◽  
Equity Fund ◽  
Content Type ◽  
Private Equity Fund ◽  
Enforcement Action ◽  
Policies And Procedures ◽  
Equity Funds ◽  
Private Equity Funds ◽  
Brokerage Commissions

Purpose To explain a US Securities and Exchange Commission (SEC) enforcement action against a registered investment adviser to private equity funds for allegedly providing brokerage services in connection with the acquisition and disposition of the securities of portfolio companies while not being registered as a broker dealer, making undisclosed use of fund assets, and failing to adopt policies and procedures designed to prevent the alleged violations. Design/methodology/approach Describes the services provided by the investment adviser, the compensation paid, and the SEC’s other bases for enforcement, and draws conclusions for private equity fund advisers. Findings The SEC has begun pursuing transaction-based compensation paid to private equity fund advisers relating to portfolio company transactions as illegal brokerage commissions. The Commission also continues to target the adviser’s undisclosed use of client fund capital, especially in private equity funds. Originality/value Practical explanation by experienced investment management lawyer.

scholarly journals A New Method to Estimate Risk and Return of Nontraded Assets from Cash Flows: The Case of Private Equity Funds

2012 ◽  
Vol 47 (3) ◽  
pp. 511-535 ◽  
Author(s):  
Joost Driessen ◽  
Tse-Chun Lin ◽  
Ludovic Phalippou
Keyword(s):  
Private Equity ◽  
Cash Flows ◽  
Small Sample ◽  
Dynamic Setting ◽  
Equity Funds ◽  
Before And After ◽  
Market Beta ◽  
Small Sample Properties ◽  
Private Equity Funds ◽  
Nontraded Assets

AbstractWe develop a new methodology to estimate abnormal performance and risk exposure of nontraded assets from cash flows. Our methodology extends the standard internal rate of return approach to a dynamic setting. The small-sample properties are validated using a simulation study. We apply the method to a sample of 958 private equity funds. For venture capital funds, we find a high market beta and underperformance before and after fees. For buyout funds, we find a relatively low market beta and no evidence for outperformance. We find that self-reported net asset values significantly overstate fund values for mature and inactive funds.

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