Chapter 2 - Private Equity Investors Flashcards
What are the two directives regulating PE in Europe?
The Banking Directive and the Financial Service Directive
Who can be a private equity investor in Europe?
Closed-ended funds, investment firms + banks
Who are the typical investors in closed-ended funds?
High net worth individuals, banks, insurance companies, pension funds, corporations, governments…
What are the rules of which the AMC is regulated in a closed-ended fund?
Minimum capital requirements, governance rules and management rules
What are the motivations for using an investment firm to invest in PE instead of a closed-ended fund?
(1) Can use leverage and (2) Avoid strict regulation
Who are the private equity investors in the US?
Venture Capital Funds, SBICs, Banks, Corporate Ventures and Business Angels
What are the main differences between a closed-end fund and a venture capital fund?
(1) VCFs can use leverage, (2) VCFs must commit 1 % equity, compared to 2 % for closed-end funds, (3) VCFs are not regulated and supervised, (4) VCFs does not pay taxes under some requirements while the tax rate is 20 % for closed-end funds, (5) General Partners are fully liable
Under what circumstances are VCFs tax exempt?
(1) Invest only in PE, (2) Fundraising of 1 year, (3) Maturity = 10 years, (4) Max extra time = 2 years
What are the motivations for using a SBIC?
(1) Asymmetric remuneration structure, (2) Leverage is allowed, (3) 33 % cheap debt from the Federal Reserve System, and (4) Tax-exemption on the SBIC level
What are the private equity investors in the UK?
Venture Capital Funds, Venture Capital Trusts, Banks, Business Angels and Local PPPs
What is the main differences between a closed-end fund and a venture capital trust?
(1) investors are retail investors in the VCT while bigger investors in a closed-end fund, (2) VCT certificates are listed on the stock exchange, (3) VCTs can use leverage,
What are the taxation mechanisms on capital gain that can be put in place to motivate PE investment?
Flat tax, Tax Transparency and Participation Exemption
What are the taxation mechanisms on R&D and startup that can be put in place to motivate PE investment?
Mark-down (lower corporate tax rate for companies that make heavy investments in R&D), Shadow Costs (% of R&D in income statement) and Tax Credit (same as shadow costs, but can be used for several years)
What are the taxation mechanisms on D/E that can be put in place to motivate PE investment?
Thin capitalization and double income taxation
What are the new solutions to PE vehicles that have emerged over the last years?
(1) Private Debt Funds, (2) Crowd Funding, (3) Venture Philanthropy and (4) Special Purpose Acquisition Companies
