Private Equity as an Asset Class Book

Introduction     xiii
Acknowledgements     xxiii
What is Private Equity?     1
Fund investing versus direct investing     2
Terminology     4
Primary versus secondary fund investing     6
A broad delineation: buyout and venture     7
Capital: allocated, committed, drawn down and invested     9
How do private equity funds work?     11
Structure     11
Cashflow     13
Investment     15
Fundraising     16
Summary     20
Private Equity Returns - The Basics     23
Understanding the J-curve and compound returns     23
Upper quartile figures     29
Median returns     30
Average returns     31
Pooled returns     34
Multiples     34
Distributed over Paid In (DPI)     37
Paid In to Committed Capital (PICC)     38
Residual Value to Paid In (RVPI)     38
Total Value to Paid In (TVPI)     38
Valuation     39
Fees     40
Time-weighted returns     41
Summary     42
Buyout     45
Types of buyout transactions     45
MBO     45
MBI     46
BIMBO     46
LBO     47
Take private     47
Roll-up     48
Other "buyout" activity     48
Established businesses     50
Debt     52
Earnings     54
Size     55
Control     58
Barriers to entry     61
Summary     64
How to Analyse Buyouts     67
Earnings     68
EBIT     70
EBITDA     71
Earnings growth     72
Multiple     74
Multiple increase in an imperfect market     74
Multiple increase in a perfect market     77
Leverage     78
Recapitalisation     79
Timing     80
Modelling and analysing buyout funds     82
Summary     87
Buyout Returns     89
US versus European buyout     89
Buyout skill bases     91
Imperfect markets     92
Earnings multiples     94
Earnings growth     97
Leverage      100
Fund size     101
What can we expect from buyout returns in future?     107
Recent fundraising levels     109
Some conclusions and predictions     111
Summary     113
Venture Capital     115
What is venture capital?     115
Backing new applications, not new technology     116
Classification by sector     118
IT     118
Telecoms     121
Life Science     124
Classification by stage     128
Seed     129
The US model     131
Seed stage focus     131
Home run mentality     133
"Value add"     133
The US model comes to Europe     134
Why European venture capital firms have avoided the seed stage     134
Classification by stage, continued     135
Early stage investing     135
Mid- and late stage investing     135
Summary     135
How to Analyse Venture     137
The fundamentals     137
Money multiples     137
Valuation     140
Cost and value     147
IRRs and multiples      149
Going In Equity (GI%)     150
Percentage of the holding within the fund     151
The impact of home runs     151
Summary     155
Venture Returns     157
US out-performance versus Europe     157
Money multiples drive IRRs     159
Home runs and the golden circle     160
Market conditions     163
European venture - is it as bad as it seems?     165
Returns and fund size     170
Venture returns by stage     175
What of the future?     177
Summary     180
Due Diligence     183
Buyout funds     186
Venture funds     188
Co-investors     191
Cross-fund investing     192
Buyout companies     192
Venture companies     194
Fund of Funds     196
Monitoring private equity funds     198
Summary     201
Planning your Investment Programme     203
Cashflow planning     203
Allocated, committed and invested capital     205
Diversification by time     206
Proper commitment levels      208
Diversification by sector and geography     209
Total Return     213
How to deal with uninvested capital     214
Secondaries     216
Mezzanine     219
Private equity proxies     219
Towards a new world of private equity programmes     220
Summary     222
Glossary     225
Index     253