The 2013 performance of the private equity industry, given any of several metrics, was quite strong. Why? In part because the exit environment has been very good.
Intralinks’ report suggests that “a handful of fundamental and positive shifts” are at work in the recent uptick in M&A activity. On a behavioral note: corporate confidence is returning, and presumably confident managements are more likely to seek out acquisition targets than are nervous managements.
Guest columnist Donna Howe, CFA, looks at the different aspects of private equity and the associated risks.
Investors need benchmarks, especially benchmarks of likely infrastructure return, because the long-term illiquid nature of that investment increases information asymmetry between investors and managers, whereas benchmarks keep this asymmetry bearable. So explains Frédéric Blanc-Brude of EDHEC.
As always, government wants revenue, and by what is now a reflex action heads have turned to the issue of carried interest. Faille speculates that little, if anything, will happen at the federal level, but that we may soon see a shift in the location of the action.
I admire a new "direct alpha" approach to measuring the success of PE portfolios. So will anyone who has had to tell a friend or loved one, "just come out and ask me please!"
Chesapeake Energy Corp.'s former CEO launches new energy fund. Joao Peixe, Oilprice.com, reports.
The crucial generalization to be drawn from the last three decades of alternatives investing by institutions is that generalization is tricky. Even within one type of structure, such as VCs, broad statements have to take account of the wide dispersion in returns, "making manager access and selection key determinants of success."
Comparing the 2011 and 2012 data, some correlations that seemed clear in the former year either disappeared entirely, or become a good deal blurrier, in the 2012 data.
In part two of two, Perritt Capital Management looks at active microcap as an alternative to private equity. Part one published Sept. 25 on AllAboutAlpha.com
In part one of two, Perritt Capital Management looks at active microcap as an alternative to private equity.
In early 2011, Jason Kelly, a Bloomberg News reporter, decided that he had to write this book to explain to the general public how PE works. That sort of epiphany makes it a little surprising that there isn't more of an over-arching theme in the book that resulted.
All that dry powder on the sidelines means good news and bad for PE GPs: first, that there is room for a lot of new demand for their services (the good news); second, that investors remain hesitant – they have deliberately kept that powder in the horn and many will likely continue to do so (the bad news).
Two scholars have published a new model of private equity funds, looking for the real drivers of abnormal returns by process of elimination.
An opinion by Chief Judge Lynch, of the 1st Circuit Court of Appeals, should have private equity managers in that Circuit reviewing their portfolios, and thinking in a more expansive way about their potential ERISA liabilities for companies they control.
Companies in the chemicals industry end up in play as mergers-and-acquisitions targets when they have trouble getting financing any other way. If QE policy makes financing too easy, it has the counter-intuitive effect of freezing this particular M&A market.
Guest columnist Shane Brett looks at AIFMD compliance for private equity managers.
Yucaipa has filed a federal lawsuit that accuses OTK of deceiving the shareholders of Morgans Hotel by misrepresenting the recommendations of two shareholder advisory services. As a legal argument this is ... surprising.
The holding in Kalisman v. Friedman says that there are limits to what the majority of the board can do to keep its dissident isolated and in the dark. That is the right way to grow mushrooms, not the right way to treat a fellow director.
The pattern with respect to allocations by institutional investors to hedge funds since 2009 is somewhat different from that of allocations to private equity. As Preqin’s report explains, many institutions have long been familiar with hedge funds, their learning curve has flattened out so to speak, and they have established a target allocation for hedge funds considered as an asset class.
Guest columnist John Bhakdi looks at the future of venture capital in this final segment of a three-part series.
Guest columnist John Bhakdi looks at structured seed capital
Recent and ongoing transformations in the PE industry and its institutional contexts have created a demand for a more robust infrastructure: mid or back-office functions are the weight-bearing beams of PE firms.
A new paper in the Journal of Investment Management claims that five sophisticated high-profile institutions could have made better use of the PE portion of their portfolios over the period 1999 to 2010 had they applied the insights of the founder of modern portfolio theory, Harry Markowitz.
If PE managers want to raise money in the present environment, they have to be very clear with their potential investors about how their strategy will work, and they have to pay attention to what those investors are trying to tell them. Further, it might help if neither side in that equation pays too much attention to consultants.
Acceptance of the higher levels of volatility as a fact of life means that careful ongoing attention to risk has become the means of operations. In the United States specifically, 31 percent of institutions say that they monitor their risk budget daily to keep the overall amount of risk in the portfolio under check: more than half (53 percent) say that they do such monitoring on a weekly or monthly basis.
There is good news to report about the renewal of PE activity in the Asia-Pacific region in 2011, and the new McKinsey paper reports it. One potential worrying sign, though, is that in some areas, notably Southeast Asia and India, businesses aren't exiting the PE market for the public world. Indeed, Southeast Asia recorded no initial public offerings at all in 2011.
In a study of its own portfolio the Kauffman Foundation found that only twenty of 100 venture funds “beat a public-market equivalent by more than 3 percent annually”.
The reason for the increased interest in alternatives, McKinsey says, isn’t that the alternatives’ managers are slashing the price of their services. It is, rather, a discontent with the return to be gained from traditional investment. “Even with downward pressure likely over the next few years, revenue yields for institutional alternative products should remain well above the 35 bps average earned on today’s traditional institutional products.”
The survey also asked that the asset managers state where their total assets are invested, using four geographical categories: Europe; Central/North America; Asia Pacific; Other. Commodity funds were easily the most heavily invested in C/NA, to the extent of 94 percent of their portfolios. Private equity funds are 61 percent invested in C/NA, and PE FoFs also have the majority of their portfolios there, at 54 percent.
A veteran of hedge funds and private equity, Jeff Joseph offers some comments to the U.S. Securities and Exchange Commission on the JOBS Act and what this legislation has the potential to mean to the global alternative investment community.
A recent Kauffman Foundation Study draws daunting conclusions regarding their 20 year experience in the venture capital sector. AARM Founder, Gitanjali Swamy, believes Good Venture exists and shares a road map to help investors find attractive pockets of investment opportunities in venture. What do you think about the future of venture capital in the United States?
AllAboutAlpha talks to Jalak Jobanputra, MD at RTP Ventures on the mobile payments market, which is set transact over US$1 trillion by 2016.
A deeper look at alternatives with Dr. Bob Swarup, a world-renowned expert and commentator on alternatives and financial markets as well as being a visiting fellow at London School of Economics.
Industry watchers are watching the tug of war between private equity GPs and LPs. Surprisingly, LPs don't want to dictate terms, if Canada offers any evidence. They want equality. And all the rest: a decent track record, a stable team and a successful strategy.
It looks like the pension funds are worse off than if they had stuck to vanilla bonds and stocks, not least because of the management fees they pay to alternative investment managers.
Consultants expect that managers' need to generate steady income in a low interest rate environment will drive a lot of portfolio turnover in 2012, inclusive of the movement of alternatives into core positions within portfolios, and it will drive one-time U.S. focused investors and managers to look abroad. Meanwhile, pensions are retreating toward passive mandates.
The Grant Thornton paper maintains that the asset management industry achieved "performance and operational efficiencies" during 2011, and this sounds like the sort of marginal adaptation that play a large part in Charles Darwins' writings, to which GT's Winstoin Wilson alluded. But ... the report also treats the regulatory environment as a meteor, capable of wiping out even the best-adapted of pre-collision dinosaurs. So "the Darwinian process" is an odd label for what it describes.
Lisa Suennen of Psilos Group discusses the new wave in healthcare venture capital: improved care quality while reducing costs.
2011 was the year private equity managers learned to accept that what they got even if it wasn't always quite what they wanted. Investors talk about what they want and need in 2012.
Two scholars affiliated with the Center for European Economic Research, drawing upon European data between 2000 and 2008, maintain that PE backed companies do not suffer from higher bankruptcy rates than their control group of comparable companies. Their paper also addresses the relationship between bankruptcy risk on the one hand and the syndicated (or, conversely, the stand-alone) nature of a PE deal. It finds no significant relationship.
In spite of what the media might have us believe, it isn't quite the end of the world as we know it, particularly as it applies to European private equity.
A recent study, in which Steve Kaplan of the University of Chicago collaborated with Bob Harris of the University of Virginia and Tim Jenkinson of Oxford, addressed fund-level performance using data from Burgiss Group. Kaplan said this study indicates that “private equity has performed remarkably well.” In the period 1990 to 2008, a dollar in PE returned to investors 300 to 400 basis points a year more than a dollar in the equities of the S&P 500, net of all fees. This, if accepted, still leaves the question of the relationship of PE funds/firms to one another. Are they all the same?
If every fund is number one, then no one is number one. Irina Zeltser examines performance rankings in private equity.
EisnerAmper LLP's latest edition of “Pulse of Private Equity” finds that PE firms in the second half of 2011 are becoming “more sober about the potential for transactions,” compared to last year or earlier this year.
Angel investors are returning to provide seed-stage capital and job growth. slowly recovering after the financial crises of 2008 and 2009.
Managers were asked: “other than delivering expected performance, what is the greatest challenge in satisfying investors?” The results were: getting investors comfortable with infrastructure, 22 percent; providing satisfactory performance attribution data, 19 percent; providing broader education/consulting, 18 percent; providing satisfactory risk analytics, 11 percent; other, 28 percent. The residual answer produced more favorable replies, then, than did any of the pre-scripted answers.
Following the ongoing financial crises that began in 2008, financial services providers are changing the way that they do business. Preqin looks at the shifting role of the consultant and the effect that change is having on the private equity industry.
Even against the backdrop of a global recession, the top 50 fastest growing companies in the USA averaged growth rates between 3,893% and 40,882% in the three years to the start of 2011. These are rates of return which more than compensate the investor for the risk of making high-growth-young-company-investments. For some investors, alternative markets […]