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Investing in private equity funds a survey

Published 12:13 от Mezragore

investing in private equity funds a survey

A global survey panel with many investment research use cases Private equity: These are funds that invest in private companies of varying sizes. The survey shows that the average investor has obtained poor returns from investments in private equity funds, potentially because of excessive fees. The survey covered three areas: Headline industry concerns related to private equity and private capital investments; Allocation trends to. STUPIDLY SIMPLE FOREX PDF BOOK

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A long-term commitment to the private equity asset class and a developed reputation in the business is paramount to developing strong and credible relationships with leading general partners. Fund general partners like to develop relationships with limited partners who they can count on to reinvest in future funds, who know the business, do not require a lot of hand-holding on private equity investments, and who can potentially add value in terms of enhancing the network of the general partner.

The network and history created between leading general partners and limited partners often leads to an invitation-only opportunity to invest in other leading funds. The fund of funds manager can, therefore, provide access to this exclusive network for investors in its funds of funds. Identifying Leading and Emerging General Partners It is critical to apply consistent criteria to all fund investment opportunities, including re-investments in general partners with whom there is already a relationship.

The key criteria in evaluating private equity fund general partners includes: portfolio fit, industry and sector expertise, focus and reputation, track record, strategy, integrity and commitment, team rapport, deal flow, and acceptable contract terms.

As many leading general partners see a transition in management in the evolution of their firms, the fund of funds manager must be diligent in recognising when a leading fund may have lost its edge. It is easy for an investor to rely on the reputation of the general partner to select fund investments.

However, it takes expertise and experience to assess funds that can be the next generation of leading funds. In addition, due diligence may include several face-to-face meetings with the partners, extensive review of the track record and investment strategy, review of existing and potential investments and extensive reference checks.

Most of all, there must be a general comfort level with the strength of the team, personal incentives and motivations of the partners, their operating philosophy, and specific areas of expertise and, finally, how the strategy fits with the rest of the portfolio.

Built around the core portfolio are more focused and emerging funds that may have the ability to target a particular niche and more strictly adhere to their investment strategy. For more tactical allocation and the opportunity to fine-tune allocations and enhance returns, many funds of funds will make co-investments directly in private companies along with the general partners, using a small portion of the fund.

In all cases, it is important to systematically apply principled criteria and a disciplined due diligence process. Actively Managing the Portfolio Once fund investments are made, many private equity investors take a passive approach, waiting to see what the general partners can deliver. Monitoring and Reporting Monitoring investments in a diversified private equity portfolio can be complex. There are quarterly and annual reports and partnership tax returns for each partnership as well as quarterly and annual conference calls and meetings with the general partners.

A strong fund of funds manager constantly reviews reports, attends meetings and conference calls and effectively aggregates and communicates such information to investors via quarterly reports and meetings with its investors. The fund of funds also consolidates and simplifies monitoring and administration of capital calls and distributions.

Additionally, questions about the portfolio, individual funds or companies can be directed to a single point of contact. Conclusion Private equity is an alternative asset class that should be strongly considered for long-term investors who seek to outperform public equities and add portfolio diversification. Using an experienced, effective manager through a fund of funds vehicle is an efficient way to achieve needed diversification, leveraging the necessary expertise to build, manage and monitor the private equity portfolio.

FW Capital, and its affiliates, have invested in more than underlying funds and 33 direct co-investments. For more information, contact Fort Washington Capital Partners Group at 1 or visit us on the web at www. Western-Southern formally established Fort Washington in , and subsequently transferred certain members of the Finance Department personnel to the newly-formed entity.

For more information, visit www. Note: The opinions expressed herein are those of Fort Washington Capital Partners Group as of the date s indicated, and should not be relied upon in making any investment decisions with respect to private equity or fund of funds products. Please consult your investment professional before pursuing any alternative investment strategy. Footnote 1 Venture Economics VentureXpert database, Russell Investment Group: Dow Jones: edition.

Firms invest using a combination of debt and equity to improve the potential IRR; more debt means that they contribute less of their own capital see: the LBO model concept. Returns from traditional LBOs are mostly linked to financial leverage because the companies are already mature, so growth opportunities are more limited see: quick IRR calculations for LBO models. Of course, this works both ways: leverage amplifies returns, so a highly leveraged deal can also turn into a disaster if the company performs poorly.

Stage of Investment: Mature. Industry: Diversified, but firms often avoid certain industries that are too speculative e. Investment Strategy: Financial engineering, operational improvements, and roll-ups and industry consolidations. The main difference is that the upside is capped, so professionals focus on assessing the downside risk in deals.

For example, what happens if a company loses customers in one geography? What if its market declines? What happens in a recession? Could a company survive and still repay its lenders even if it faces a small disaster? Since the financial crisis, direct lending has soared, with total assets rising into the hundreds of billions.

Part of that is because of regulatory changes: due to the Dodd-Frank legislation in the U. Yields on direct loans are often in the high single digits to low double digits e. Mezzanine debt tends to have a relatively high, fixed coupon rate e. So, more financing and less operating. Distressed Private Equity Again, we have a comprehensive article on distressed private equity , so you can refer to that.

They use a variety of strategies, ranging from distressed debt trading to buying and holding debt to gain influence or control to turnarounds following full acquisitions. This field is relatively small and specialized, and to get in, you need a good credit background e. Industry-Specific and Asset-Level Strategies The main difference here is that these firms invest in specific assets, not entire companies.

The Asset Management side is related to the ongoing operations of a property once the firm has acquired it, and the job involves both maintenance and operational improvements. Some REPE firms focus on specific segments within commercial real estate , such as multifamily, industrial, office, retail, or hotel properties; other firms are diversified.

There may also be a geographic focus or preferred strategy, and some REPE firms may also invest in real estate debt. Infrastructure Private Equity Once again, we have an article on infrastructure private equity , so please refer to that for the details.

The difference is that the assets are different: toll roads, bridges, power plants, oil and gas pipelines, wind farms, and airports rather than apartments or office buildings. Strong Cash Yields — Unlike traditional LBOs, where all the returns might come upon exit, infrastructure assets usually yield high cash flows during the holding period. Holding periods are also longer, compensation is lower due to lower management fees 1. Funds of Funds Once again, we have an article on this one private equity funds of funds.

Instead, they invest in other private equity firms who then invest in companies or assets. This role is quite different because professionals at funds of funds conduct due diligence on other PE firms by investigating their teams, track records, portfolio companies, and more. Some funds also co-invest with their PE firms, and in those cases, you get more exposure to deals.

However, the IRR metric is deceptive because it assumes reinvestment of all interim cash flows at the same rate that the fund itself is earning. And if you want to reconsider your life plans, check out this feature on Coin-Flip Capitalism. The Fed and other central banks have suppressed interest rates and are now monetizing the debt, which mostly benefits the wealthy.

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