Industries exposed to private equity activity are growing faster than the ones that are not, a study by the World Economic Forum (WEF) showed. The study showed production, value added and employment were all higher in industries where deals happened in the period between 1991 and 2007. “If structured appropriately, private equity is indeed a vital catalyst to sustained economic growth on a global basis,” Joncarlo Mark, portfolio manager at Calpers — the biggest U.S. public pension fund — said in a press release.” The study is the third in a series of reports by the World Economic Forum to look at alternative investments, The Global Economic Impact of Private Equity Report 2010, examined the impact of private equity investments across 20 industries in 26 western countries over the period 1991-2007.
“The study… included data over other cycles which makes me comfortable that we’ve identified a general trend although clearly the current downturn is different in scale to other cycles,” said Josh Lerner, who contributed to the study.
According to the report, the number of employees in industries with greater private equity activity, grew at an annual rate that is between 0.4 percent and 1 percent higher than other in industries. And while average output growth was 6.2 percent in industries exposed to private equity over the period, it stood at 5.7 percent in those that were not. Moreover, private equity backing did not cause an industry to be more volatile than others.
Private equity firm AIG Private Equity Ltd. published its 2008 Annual Report that includes the Chairman’s Statement by Eduardo Leemann, Chairman of the Board for AIG Private Equity, that discusses the firm’s performance in 2008 and their outlook going forward. See a copy of AIG Private Equity Ltd.’s 2008 Annual Report below and/or it can be directly downloaded here.
Certain Quotes from the Chairman’s Statement by Eduardo Leemann, Chairman and CEO of AIG Private Equity
2008 was a disappointing year. “2008 was a disappointing year. The global financial crisis that began in 2007 intensified sharply following the bankruptcy of Lehman Brothers in September 2008, and credit markets came to a near standstill, with lenders unwilling to assume counterparty risk. Uncertainty and lack of credit had a significant impact on an already weak real economy, with most developed economies contracting sharply in the fourth quarter. Public equity markets turned in their worst performance in decades, with many major indices down 30–40% or more for the year.” Read More »
Private equity firm Apax Partners published its 2008 Annual Report that includes the Chief Executive’s Letter by Martin Halusa, CEO of Apax Partners, that discusses the firm’s performance in 2008 and their outlook going forward. See a copy of Apax Partners’ 2008 Annual Report below and/or it can be directly downloaded here.
Certain Quotes from the Chief Executive’s Letter by Martin Halusa, CEO of Apax Partners
Private equity model is robust and relevant in these turbulent times. “Given the dramatic events in the financial services industry and the global economy during 2008, I would like to start by stating clearly that we believe the private equity ownership model is robust and relevant in these turbulent and worrying times.”
Private equity is a viable alternative to public market and family ownership. “In the last decade, private equity has become an established and viable alternative to public market and family ownership, and we believe that this shift is here to stay. It is our view that companies will continue to alternate between public and private ownership in accordance with their funding needs and the ability of the public markets to value them correctly, fund their growth and deal with significant changes in strategy, which may impact short-term performance.” Read More »
Private equity firm Kohlberg Kravis Roberts & Co (KKR) is moving closer to becoming publicly traded after receiving approval from the board of the fund to combine businesses of KKR and KKR Private Equity Investors LP (KPE). KPE, the Amsterdam fund it proposes acquiring, launched a consent solicitation to seek approval for the deal. The 419-page consent solicitation is provided to the fund’s unitholders and gives a detailed update of the performance of its funds and valuations of its portfolio companies. To learn more about private equity firms and its publicly traded entity, see a copy of the consent solicitation below or directly download it here.
Excerpt of the valuation of KKR’s major portfolio investments: Read More »
For a sample of a limited partnership agreement in private equity for a publicly-listed entity, see below (or directly download here) a copy of Limited Partnership Agreement for KKR Private Equity Investors, L.P. dated May 2, 2007.
As a quick definition of a limited partnership, a limited partnership is a form of partnership, where typically in private equity, there is one general partner (GP) and there are one or more limited partners (LPs). The GPs are, in all major respects, in the same legal position as partners in a conventional firm, i.e. they have management control, share the right to use partnership property, share the profits of the firm in predefined proportions, and have joint and several liability for the debts of the partnership. The LPs have limited liability, meaning they are only liable on debts incurred by the firm to the extent of their registered investment and have no management authority.
Mr & Mrs Asia – Asia’s Middle Class Revealed report by CLSA Asia-Pacific Markets dated Autumn 2007 provides a good background of the Asian consumer, demographic and lifestyle trends and prospective investment opportunities. Asia’s middle class will be a core element in leading the Asian region as the primary global growth engine in the future. It is paramount to understand these Asian consumers to identify investment trends and opportunities, especially for private equity given its longer-term investment horizon.
This 256-page report is one of the most comprehensive surveys of Asia’s middle class ever undertaken, covering 35,200 households across the region that included 11 countries – China, Hong Kong, Taiwan, Japan, Korea, Thailand, Malaysia, Singapore, Indonesia, Philippines and India. See a copy of the report below and/or directly download it here.
Key Areas Covered in Mr & Mrs Asia – Asia’s Middle Class Revealed Read More »
Note on Leveraged Buyouts by the Tuck School of Business at Dartmouth Center for Private Equity and Entrepreneurship provides a good overview of the leveraged buyout (LBO) including the theory, mechanics and terminology. See the document below or directly download it here.
Key Topics in Note on Leveraged Buyouts
Introduction
History of the Leveraged Buyout (LBO)
The Theory of the LBO
Mechanics of the LBO
Buyout Firm Structure and Organization Read More »
Onex is one of North America’s oldest and most successful private equity firms and publicly-traded on the Toronto Stock Exchange under the stock symbol OCX. Onex provides the firm’s insight on 2008 and the outlook going forward in its 2008 Annual Report. See below a copy and/or directly download it here.
Certain Quotes from Onex’s 2008 Annual Report
Tumultuous economic environment to have significant impact on 2009. “It is widely accepted that the tumultuous economic environment that shocked the world in 2008 will continue to have a significant impact on 2009. Global equity markets continue to suffer after facing some of the largest losses in history and, despite efforts by central banks to stabilize the global financial system, lending has not yet resumed in any substantial manner.”
Past acquisition activity fueled by abundant and inexpensive credit. “The period 2005 to 2007 were years of significant acquisition activity fuelled in part by credit that was abundant and inexpensive.” Read More »
Coller Capital, one of the largest secondary private equity investors in the world, publishes the Global Private Equity Barometer which is a snapshot of worldwide trends in private equity from the opinions of approximately 120 private equity investors or limited partners (LPs) worldwide. See a copy below and/or directly download it here.
Key Highlights from Global Private Equity Barometer Summer 2009
One third of LPs plan fewer private equity firm or general partner (GP) relationships. Almost a third (31%) of private equity investors intend to reduce their number of private equity firm or general partner (GP) relationships over the next two years. GPs in Asia-Pacific will, overall, fare better in this respect than their counterparts in more developed private equity markets. Fewer investors (just 11%) are planning to reduce their number of GP relationships in the Asia-Pacific region than in other regions.
A quarter of GPs expected to fail in the fallout from the downturn. LPs believe 28% of venture capital firms and 23% of buyout firms will not be able to raise a new fund in the next 7 years – in other words, they will go out of business. Read More »
3i Group, one of largest private equity firms in Europe and publicly listed (London Stock Exchange: III.L), published its 2009 Report and Accounts that included the Chairman’s Statement and CEO’s Statement that provides key insight and commentary by Baroness Hogg, Chairman of 3i Group, and Michael Queen, CEO of 3i Group, with regards to 2008 and the outlook going forward. See a copy of 3i Group’s 2009 Report and Accounts below and/or can be downloaded here.
Certain Quotes from the Chairman’s Statement by Baroness Hogg, Chairman of 3i Group
Significant decline in net asset value. “During the year to 31 March 2009, 3i’s net asset value per share fell from £10.77 to £4.96, in sharp contrast to the strong returns of the previous five years. The most rapid economic downturn in 3i’s history, the dislocation of capital markets and the collapse of mergers and acquisitions activity all undermined the value of our portfolio. It also led to a significant increase in the leverage on our balance sheet, which itself magnified our negative return.” Read More »
Terra Firma, one of largest private equity firms in Europe, published its 2008 Annual Review, the Letter from the CEO provides insight and commentary by Guy Hands, Founder, Chairman and Chief Investment Officer of Terra Firma, with regards to 2008 and the outlook going forward. On March 17, 2009, Terra Firma announced that it is separating the Chairman and CEO positions for Guy Hands with Tim Pryce becoming the CEO. See a copy of Terra Firma’s 2008 Annual Review below and/or can be downloaded here.
Certain Quotes from the Letter from the CEO by Guy Hands, Founder, Chairman and Chief Investment Officer of Terra Firma
Financial world changed beyond recognition. “…the financial world has changed beyond recognition. Governments now own, or effectively control, many of the biggest financial institutions on the planet. Some financial groups are breaking apart, others are merging, and a few have simply ceased to exist.”
Significant stock market value destruction. “The dramatic worldwide decline in stock market values has destroyed more than five years of growth in the value of listed investments. Nominal stock market valuations in the UK are effectively back to those last seen in 1997, while real share values have retreated to 1993 levels.” Read More »
Private Equity Primer by the Meketa Investment Group, a private market advisory and investment consulting firm with clients representing over $250 billion in aggregate assets, provides an overview of private equity, investors and other stakeholders, terminology, and more. We continue to search for helpful materials to assist in understanding the private equity market and help in its growth in Asia. See a copy of the report below and/or directly download it here.
KEY TOPICS IN PRIVATE EQUITY PRIMER
WHAT IS PRIVATE EQUITY? Private equity investments are investments in privately held companies. Private equity investments are generally structured in the form of partnerships that consist of numerous equity investments in individual companies. Private equity investments come in many forms, including venture capital funds, buyout/leveraged buyout (LBO) funds, mezzanine debt funds, and international private equity funds. All of these strategies produce significantly different returns than traditional investment classes, and exhibit different fundamental characteristics from each other. Read More »
Fortress Investment Group (NYSE listed under the symbol “FIG”) is a leading global alternative asset manager with approximately $29.5 billion in assets under management as of December 31, 2008. The firm raises, invests and manages private equity funds and hedge funds.
In Fortress’ 2008 Annual Report, the Shareholder’s Letter provides insight and commentary by Wesley Edens, Co-Founder, Chairman and CEO of Fortress Investment Group, with regards to 2008 and the outlook going forward. See a copy of the Fortress Investment Group’s 2008 Annual Report below and/or can be downloaded here.
Certain Quotes from the Shareholder’s Letter from the Wesley Edens, Chairman and CEO of Fortress Investment Group
2008 was single most volatile and difficult year ever experienced. “2008 was the single most volatile and difficult year in the financial markets that we have ever experienced. To say the least, it is very good to have last year behind us. Since the credit crisis began in July 2007, we have experienced a near perfect storm of a severe global economic recession, weak global equity markets, moribund debt markets, a banking system of questionable solvency, and steep declines in the value of virtually every asset imaginable.”
Still a significant amount of deleveraging to go. “What began as a “containable” financial crisis in US subprime mortgages has spread to a financial crisis globally, and although the world is considerably less leveraged today than it was a year and a half ago, there is still a significant amount of deleveraging to go.”
Recovery does not seem imminent. “It is hard to imagine that there can be a meaningful recovery until credit markets are reestablished and employment and housing find a bottom, none of which seems imminent.”
Tremendous dislocations produce once in a lifetime investment opportunities. “These tremendous dislocations, while violent and unnerving, are of course exactly the types of markets that produce “once in a lifetime” investment opportunities.” Read More »
How Private Equity Works? The topic of private equity is relatively unknown to the general public, especially in Asia, where it is a rapidly growing investment asset class. We attempt to find a variety of articles that helps in the understanding and growth of private equity in Asia. Below is a summary and a diagram of an article from the Financial Times (see article here; see diagram below or directly download it here).
Private equity is attractive to investors because there are numerous empirical studies that private equity outperforms other asset classes. In a nutshell, private equity is professionally managed equity investments in the unregistered securities of private and public companies. Private equity ranges from venture capital, mid-market buyouts to large buyouts and can be further segmented by investment style (e.g., special situations and turnarounds, mezzanine finance, small-, mid- or large-cap buyouts, etc.), geography and industry sector.
Chinese Consumer Report 2009 by Roland Berger Strategy Consultants is an overview of the Chinese consumer and their preferences from a survey of over 12,000 individual interviews were conducted with consumers between the age of 18 and 64 in a study (see below a copy of the report or directly download it here). Some of the highlights include: Read More »
The Board of Governors of the Federal Reserve System has prepared a good overview of the private equity market to understand the various stakeholders and other components of the private equity market (see a copy below or directly download it here).
The key areas covered in the report include: Read More »
The World Economic Forum recently published a comprehensive report — The Global Enabling Trade Report 2009 — that assesses the extent to which countries around the globe have in place the institutions and policies for enabling trade (see a copy of the report below or directly download a copy here). It also serves as a yardstick of the extent to which countries enjoy the factors facilitating the free flow of goods and identifying areas of the Enabling Trade Index (ETI) where improvements are most needed. The ETI mirrors the main enablers of trade, breaking them into four overall issue areas, called subindexes: Read More »
The Carlyle Group, one of the world’s largest private equity firms, published its 2008 Annual Report in May 2009 providing perspectives from the Founders and Managing Directors (William Conway, Jr., Daniel D’Aniello and David Rubenstein) of The Carlyle Group’s in their Letter from the Founders. See a copy of The Carlyle Group’s 2008 Annual Report below and/or can be downloaded here.
Certain Quotes from Letter from the Founders (William Conway, Jr., Daniel D’Aniello and David Rubenstein)
World changed dramatically in 2008. “Nonetheless, the year 2008 was a humbling experience for us and most of the financial services industry. After several spectacular years of unprecedented growth, product innovation, geographic expansion, capital deployment and investment gains, our world changed dramatically.”
Changes in private equity. “On its face, the private equity industry doesn’t appear to have altered much. But look closer and the changes begin to appear: deal flow has slackened; exits are fewer; investors are hesitant to commit fresh capital; stock prices are down; and debt and equity valuations have been hard hit. Some portfolio companies have restructured, sought bankruptcy protection and even liquidated.”
Private equity landscape has changed for the foreseeable future. “In 2008, the financial landscape changed—and it will remain changed for the foreseeable future. Operating conditions for our portfolio companies will remain challenging. Transactions will be fewer and smaller. More equity will be required and debt terms will be less favorable. And hold periods will increase while returns will decrease.” Read More »
The Blackstone Group, one of the world’s largest private equity firms, published its 2008 Annual Report in March 2009 providing Stephen Schwarzman‘s, Chairman, Chief Executive Officer and Co-Founder of The Blackstone Group, Letter to the Unitholders. See a copy of The Blackstone Group’s 2008 Annual Report below.
Certain Stephen Schwarzman’s Quotes from Letter to the Unitholders
2008 was one of the most challenging environments since the Great Depression. “We ended 2008 and begin 2009 in one of the most challenging equity, credit and economic environments since the Great Depression. Economies around the world have all weakened significantly and, in the case of most developed nations, have declined very sharply. Liquidity in the global banking system and capital markets has collapsed, restricting borrowing opportunities for most individuals and corporations. Almost every asset class, including equities, debt and commodities, has been sharply devalued, and financial services companies’ earnings and stocks have been among the hardest hit.”
$27 billion in dry powder ready for investment. “Overall, as of February 27, 2009, we have dry powder in the form of approximately $27 billion in funds to invest when we believe values are compelling.” Read More »
Kohlberg Kravis Roberts & Co., one of world’s largest private equity firms, published its 2008 Annual Review in April 2009 discussing Henry Kravis‘ and George Roberts‘ comments in the Letter from the Founders. See a copy of KKR’s 2008 Annual Review below.
Henry Kravis and George Roberts Quotes from Letter from the Founders
2008 was a year of dislocation and challenge. “[2008] was a year of severe dislocation and extraordinary challenge. It began with many predicting an economic slowdown and ended, as far fewer anticipated, with the economy mired in the worst financial contraction since the 1930s.”
Ramifications of 2008′s turmoil. “There were many ramifications of the year’s turmoil, including a sharp increase in unemployment, a widespread decline in asset prices, a fall in global industrial activity and the dismantling of institutions once thought to be indispensable to capital formation.”
Erosion of trust in capitalism. “Even more traumatic was the erosion of trust in financial institutions, in business and in capitalism itself. Capitalism relies on confidence: confidence that markets are efficient, that economic behavior is rational, that risk can be assessed and managed and, most importantly, that measures of value accurately represent actual underlying value. The events of 2008 undermined this confidence and, with it, many of the investment community’s deepest convictions. It will take the collective efforts of many organizations to restore the trust necessary for capitalism to flourish once again.” Read More »
