BarnellanEquityAdviceLtd-GeoffBurns私募股权(97页PPT).pptx

《BarnellanEquityAdviceLtd-GeoffBurns私募股权(97页PPT).pptx》由会员分享，可在线阅读，更多相关《BarnellanEquityAdviceLtd-GeoffBurns私募股权(97页PPT).pptx（97页珍藏版）》请在淘文阁 - 分享文档赚钱的网站上搜索。

1、Barnellan Equity Advice Ltd1SOUTHERN AFRICA PRIVATE EQUITY ROUNDTABLE October 2010Geoff BurnsBarnellan Equity Advice LtdBarnellan Equity Advice Ltd 2PRIVATE EQUITY(PE)FUNDS GLOSSARYCarried Interest share of the gain on the Fund paid to the Manager Blind Pool where there is limited visibility on the

2、portfolio to be acquiredExit realisation of the holdings in an investeeGeneral Partner(GP),PE Manager management company that raises PE fundsGross IRR IRR of the investee portfolio only.Net IRR is the return to Investors(see below)Hurdle rate an annual percentage return received by Investors before

3、the GP gets the carried interestPrivate Equity (PE)generic term for investing in private companies of which Venture Capital,MBOs and Development Capital are subsetsInterim IRR IRR of the Fund measured on activity to date,eg actual cash flows+NAV Investee portfolio company of a PE FundIPEVC Internati

4、onal PE and Venture Capital Group,established main valuation guidelinesIPO Initial Public Offering(or listing)on a recognised stock exchangeIRR=Internal Rate of Return,the discount rate/%age return where NPV is zero Limited partner(LP)Investor-surrenders decision making in return for limited liabili

5、ty and(usually)tax breaksMBO management buy outNet IRR the IRR actually received by the investor,after all costs of management and fund expensesNet Present Value the present value of future cash flows when discounted at a set rateSME Small and Medium-sized EnterprisesSystemic risk risk to the financ

6、ial markets or system,as opposed to a participant,which cannot be diversified awayVintage of Fund the year in which a fund first closesWHOLE AGENDA PRIVATE EQUITY(PE)RISK?SESSION 1:PE as an asset class:history,definitions,use,risk and return,summary risk control How do PE funds work?Using structures

7、 to mitigate riskSESSION 2:How PE is implemented?Using disciplines to control riskManager selectionBarnellan Equity Advice Ltd3SESSION 1.Emerging Market Private Equity(EMPE)AS AN ASSET CLASS1.1 History and backgroundIntroduction and History,Risk perspective Use of PE in portfoliosReturns Break to dr

8、aw breath and answer questions!1.2.Controlling Risk through the fund structureFund structureHow they workRisk mitigationAlignment and conflictsJ curveBarnellan Equity Advice Ltd4Barnellan Equity Advice Ltd5INTRODUCTION AND HISTORYEARLY HISTORY14th century Moravian Protestant movement C Europe 15th c

9、entury Florence de MediciMORE RECENT HISTORY 19th centuryIntroduction of investment trustsFinancing of US railroadsMODERN HISTORY 1975 onwardsGlobal expansion from US,then UK,then EuropeIntroduction of limited partnerships 1970/80sEmerging market PE from early 1990sDefinition of a private equity inv

10、estor-someone with deep pockets but very short arms!Barnellan Equity Advice Ltd6WHAT IS PRIVATE EQUITY?Equities not traded on public marketsPE is generic term covering Venture Capital(early stage/start ups),Expansion and Buy Out capitalHigher growth smaller companies,agility/flexibilityHigher risk(s

11、maller firms,cyclical exposure,less defensiveness,management depth)Can include some large companies as well as SMEsHolding periods of 3-7 yearsEM PE is quite a new asset classBarnellan Equity Advice Ltd7OVERVIEW OF GENERAL INVESTMENT RISKSCommon to ALL institutional equity investmentSystemic:uncontr

12、ollable externalitiesAlpha exposure to upside and downsideStrategic:failure to achieve policy objectives(desired exposure)Financial/Counterparty:loss of money/underperformance v benchmark due to investment activity and/or fraud,caused by failings in the management(of company or fund),organization/pr

13、ocessLiquidity:mostly difficult in smallcap or frontier marketsReputation:risk accepted in the listed arena?Barnellan Equity Advice Ltd 8POTENTIAL ADDITIONAL PE RISKHEAT MAP Financial-executionLiquidity Infrastructure LitigationReputationSystemic-cycleBarnellan Equity Advice Ltd9PE RISK PERSPECTIVEW

14、hat greater risks are we taking(compared to other asset classes)?1.Liquidity.Cannot realise investment at will.Medium 2.Systemic.Cycle SME sensitivity to economic and market cycles=more volatile returns.Medium3.Financial:execution in PE more difficult.High 4.Infrastructure(financial,bureaucratic,jud

15、icial)can be more difficult for private firms.Medium/Low5.Litigation:legal redress sought by creditors,suppliers,governments etc.Low 6.Reputation:damage caused by issues derived from the above.LowBarnellan Equity Advice Ltd10WHY BOTHER?Exploit market imperfectionsSME growth potential Low correlation

16、 with other assetsReturns reflect the risk?Potential long term high reward for additional riskBarnellan Equity Advice Ltd11RISK!Barnellan Equity Advice Ltd12Barnellan Equity Advice Ltd13SPECTRUM OF RISK-INVESTMENTJudgment Evidence CDOs/Junk Private E Listed equities Real Est Corp bonds Govt bondsJud

17、gement dependant on:?!Analysis!analysis and liquidity credit rating security valueHIGH RISK LOW RISKBarnellan Equity Advice Ltd14SPECTRUM OF RISK-PEJudgment Evidence Start ups early stage expansion MBO asset backedJudgement dependant on:Projections market and track record analysis security valueHIGH

18、 RISKLOWER RISKBarnellan Equity Advice Ltd15SPECTRUM OF RETURN INVESTMENT(net$based)12-25%7-15%5-12%3-7%2-4%Private E Listed equities Real Est Corp bonds Govt bondsReturn dependant on:Stage sector/geography sector/geog credit countryHIGH RISK LOW RISKReturns are targeted net to investors based on an

19、 approximate history of developed markets Barnellan Equity Advice Ltd16SPECTRUM OF RETURN(GROSS)-PE BY STAGE30-45%25-40%20-30%17-25%12-20%Start ups early stage expansion MBO asset backedDependant on:Projections market and track record analysis security valueHIGH RISK LOW RISKReturns are targeted gro

20、ss portfolio returns before fund costsBarnellan Equity Advice Ltd17COMPANY LIFE CYCLEEarly stage firms with negative cash flow.Require R&D and start up capital,high risk.30%IRRGrowth stage,expansion capital,medium risk 20-30%IRRMature phase,buy out and acquisition finance,ex growth,cash generative w

21、ith debt capacity,lower risk.17-25%IRRHigh riskLower RiskBROAD DEAL TYPE DEFINTIONS VentureExpansion capitalBuy out and acquisition financingMezzanine(shareholder loans to SMEs,or unsecured debt to mid sized/large firms)Types of investment instrument equity and quasi-equity or debt/preference all us

22、edPrivate Investment into Public Equity(PIPE)Funds may focus on one area or be quite generalist in deal type or sectorBarnellan Equity Advice Ltd18WHY USE PE IN PORTFOLIOS?Correlation low with other asset classesLong term asset,rather like real estateStabilising effect of less volatile pricing over

23、short termPotential higher return Barnellan Equity Advice Ltd19MANAGER SELECTIONPE requires specialist skills and resourceFor many institutions this is too expensive If so,sub contract management required use fund of funds In South Africa PE industry well developed,favourable conditions,good choice

24、of fundsRest of Southern Africa,where funds are available,then investment/execution is the key to successBarnellan Equity Advice Ltd20Barnellan Equity Advice Ltd 21NET RETURNS ACHIEVED BY PE FUNDSReturns to 31 March 20103 year 5 year 10 yearEmerging Markets PE&VC 9.9 13.7 7.7W Europe VC&PE (3.6)13.5

25、 14.0MSCI EM index(listed equities)5.5 16.0 10.1MSCI World index (5.4)2.9 (0.0)EMPE better than World and close to EM listed indicesReasonable result given the Crunch(EMPE was top in 2007)Caveat-not a strong benchmark.EMPE is only 307 fundsAfrica sample size too small to be included in the statistic

26、sWide dispersion of PE returns internationally and between quartiles(EMPE top quartile beats MSCI index)Source:Cambridge Associates pooled end to end$net returns after all costsSOUTH AFRICA RETURNSGross returns of independently managed funds in SA from inception to end 2009(net returns not available

27、):Barnellan Equity Advice Ltd 22Gross IRR%5 year10 year401-Source:KPMG and SAVCA 2009 SA PE surveySOUTH AFRICA RETURNS-CONCLUSIONSSmall sample but indicates:2/3 are producing strong index beating returns(20%gross IRR)Top quartile=stellar returns Only one may be a failure on present information(20%in

28、 Africa/MENANet IRR to December 2009=18%(top quartile)SME investments not significantly riskier than large ones,except well below$2m deal sizeIRR of minority position deals not significantly different from majority held onesFirst time funds produced similar returns to non first time ones Contrary to

29、 traditional view on PE riskSource:IFC.The Case For Emerging Markets,March 2010Barnellan Equity Advice Ltd 24BUT.Although good PE fund returns can result from excellent selectionWHAT IS THE REQUIRED RISK PREMIUM OVER LISTEDS?Is 15-18%net actually good relative to the riskWhat is the premium required

30、 to persuade Western LPs to invest in Africa.Different from local risk premium?Risk premium for African LPs to invest in West?!(Due to recent poor returns in West)Barnellan Equity Advice Ltd 25Pre crunch 2006-25%net from Africa.Today?Barnellan Equity Advice Ltd 26Source:EMPEA CURRENCY RISK Not of co

31、urse an issue for domestic investorBalance of exporters and domestic businesses good Regional funds look to diversification and long term nature of funds to mitigateFunds do not try to hedge,due to cost of long term hedges and uncertain cash flowsBarnellan Equity Advice Ltd 27SUMMARY SESSION 1.1PE h

32、as additional risks to those of listed equitiesIt is still early days for the asset class EMPE has an important role in a portfolioThe risks can be identified and mitigated,to capture higher returnOften undertaken by sub contract PE Manager Risk is concentrated in execution so selection of right PE

33、Fund Manager is keyBarnellan Equity Advice Ltd 28SESSION 1.PE AS AN ASSET CLASS1.1 History and backgroundIntroduction and History,Risk perspective Use of PE in portfoliosReturnsBreak to draw breath and answer questions!1.2.Controlling Risk through the fund structureFund structureHow they workRisk mi

34、tigationJ CurveBarnellan Equity Advice Ltd29Barnellan Equity Advice Ltd30FLOW OF FUNDS DRIVERBusiness angelHNW individualsGovts,agencies(DFIs),Banks/Pension firms,Insurance companiesLimited Partnerships(LP)Private Equity managers(GP)Small and medium enterprises(Investee)Other funds,retailRetailsavin

35、gsBarnellan Equity Advice Ltd31MOST TYPICAL FUND TYPELIMITED LIFE LIMITED PARTNERSHIPS FUNDS proven to be most effective.WHY?Investors reluctant to commit money to one Manager for more than 10 years,but happy with successive funds on good performanceLimited partnership or easily liquidated company s

36、tructureCommitment on which annual fee is paid,but capital drawn down as needed(IRR efficiency)Investment only allowed for four or five yearsThereafter capital to be returned as realisation of investments occurMinimum economic Fund size c$20m and so not suitable for PE deal sizes below c$200,000(fun

37、d economics)Partnership has tax transparency in many jurisdictions so can pool(commingle)different investor types STANDARD FUND STRUCTUREBarnellan Equity Advice Ltd 32LIMITED PARTNERSInvestees Fund Management/GP/Advisor FeesAdvice/mgtCapital/expenses/returnsInvestment/returns Advisory CtteeBarnellan

38、 Equity Advice Ltd 33HOW DO PE FUNDS WORK 1Initiation Investors approached by Manager(General Partner/GP)with Private Placement or Information Memorandum Negotiate a common shareholder and management agreement Initial investors make commitment on a single day=First Closing,but draw down is only as r

39、equiredOther investors may join in subsequent closings on equivalent basis for up to a yearGP expected to invest at least 1%Organisational expenses of fund up to 1%paid by fundHOW DO PE FUNDS WORK 2OperationDraw Downs against Commitment as needed for up to 5 years(Investment Period)Normally portfoli

40、o of 8-15 investments created over the 5 yearsCapital to be returned by year 10(Divestment phase)This can be extended with partner approval The GP can raise sequential fund when current fund is c 75%invested,so they always have capital availableStructure(or regular fund raisings)is potentially waste

41、ful in GP time,but helps incentive alignment,and reduces blind pool riskBarnellan Equity Advice Ltd 34Barnellan Equity Advice Ltd 35HOW DO PE FUNDS WORK 3ExpensesCostsManagement fees paid on Commitment(1.75 to 3%-dependant on size)GP may be able to charge investees certain fees,75-100%of which is sh

42、ared with fundFund carries all other third party costs,eg legal costs,auditing etcGP gets a carried interest(share of gain)of 20%of the returns after Investors received cost and hurdle(6-10%pa)backHOW DO PE FUNDS WORK 4Process Investment Committee makes investment decisionsAdvisory Committee/Board(o

43、f LPs)meets up to quarterly to review conflicts/valuationsReporting quarterlyValuations at least twice a year,now often quarterlyCapital or income received returned to Investors immediately(subject to minimums)Barnellan Equity Advice Ltd 36Barnellan Equity Advice Ltd 37TYPICAL FUND CASH FLOW FOR INV

44、ESTORS$100m Fund,$90m drawn down,IRR 20%,2.25 multiple 1.2 HOW DO FUNDS WORK TO MITIGATE RISK AGENDA Flow of fundsThe limited partnership structureHow funds workHow funds mitigate liquidity,systemic,infrastructure,litigation and reputation riskJ Curve Barnellan Equity Advice Ltd 38STRUCTURE AND PROC

45、ESS Tailor made to mitigate riskRisk categoryDescription Mitigation Liquidity No tradability of assetFund life structure and processCycle Exposed to economic/financial cycles.Uncontrollable externalities!Fund life and structure,diversification and other controls Execution Session 2Investment process

46、 complex/time-consumingProcess and procedures at PE Manager levelInfrastructure Poor private sector and institutional support Structure,proceduresLitigation Suppliers,creditors,third parties Fund structure,corporate governance Reputation Implicated by events in fund portfolio(environmental,social,ac

47、cidents etc)Fund structure,delegated managementBarnellan Equity Advice Ltd39LIQUIDITY AND CYCLE/SYSTEMIC RISKSClosed end fund protects the illiquid assets5 years to invest,10 year life gives room for manoeuvreCash starts to flow back year 4/5 Orderly investment/divestment=maximum opportunity to nego

48、tiate good entry/exit pricesDiversification within the fund across sectors/stages(very few sector specific funds in EM)5 years to invest spreads cycle risk across periods,same for exitManager does not sit on cashSecondary market(negotiated basis)IFC announced$500m fundBut,Investor must accept ring f

49、encing committed funds for long periodBarnellan Equity Advice Ltd 40LIQUIDITY AND CYCLE SPECIFIC PROTECTIONSInvestment Policy Restrictions and ProtectionsDiversification requirements Set policyCountry/sector maximumsInvestment maximums per investeeOther restrictionsEnvironmental,Social and Governanc

50、e Banned sectorsChange of policy requires investors consentQuarterly ReportingInvestee by investee detailsValuations either quarterly or six monthly Barnellan Equity Advice Ltd 41INFRASTRUCTUREPrivate sector facilitation,strength and favourability:Ownership protectionLaw of contractJudicial redress,