Lecture 7 Fundraising and IR Flashcards

1
Q

Three steps in the Asset Management Cycle (LP perspective)

A

Asset Allocation, Fund Selection, Monitoring

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2
Q

PPM

A

A private placement memorandum (PPM) is a legal document provided to prospective investors when selling stock or another security in a business. It is sometimes referred to as an offering memorandum or offering document.

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3
Q

What happens in the Asset Allocation phase?

A
  • Asset Manager (LP) determines the weight he wants to invest in PE
  • determines the diversification within PE class
  • selects investments he wants to conduct
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4
Q

What happens in Fund Selection?

A
  • Commercial DD
  • Legal DD
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5
Q

How do PEs attract investors?

A
  • informal announcements
  • talks between PEs and potential investors
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6
Q

How do PEs attract investors?

A
  • informal announcements
  • talks between PEs and potential investors
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7
Q

What does the PPM include?

A
  • targeted venture market
  • investment strategy
  • composition and reputation of the fund management team
  • legal fund structure with proposed detailed terms and conditions
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8
Q

4 substeps in the fundraising process

A
  1. Fund pre-marketing
  2. Fund DD
  3. Fund structuring
  4. Fund closing
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9
Q

Fund DD

A
  • investors require detailed documents from the PEs to carry out a detailed DD
  • personal meetings between PEs and individual investors
  • PE investor seeks a commitment from a sponsor so a reputable investor willing to commit himself to invest prior to other investors
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10
Q

Steps in the Fundraising process

A
  1. Deal Flow (look at e.g. 350 funds p.a.)
  2. Screening (deselection of funds with a bad risk/return profile)
  3. Preliminary DD
  4. Main DD (only with around 10% of funds looked at in deal flow) –> thorough analysis of performance, team, tax, and legal issues
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11
Q

What do AM look at in fund DD when looking at the management team of the PE firm?

A
  • if the team size is adequate in relation to the fund and the stage
  • previous PE experience
  • industry related and financial management expertise
  • value adding capabilities
  • low turnover of senior staff
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12
Q

What is discussed in Fund Structuring?

A

PEs and investors negotiate final limited partnership agreement (LPA); a legal document specifying
- compensation structure for the fund
- distribution scheme of costs and profits, and
- covenants relating to:
- overall fund management
- activities of GPs
- restrictions of the type of investment

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13
Q

What is the role of gatekeepers?

A

They are investment advisors and make investment decisions for the institutional investors.

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14
Q

What do placement agents do?

A

They help PE firms find limited partners committing to a fund

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15
Q

Do PE require LPs to invest everything at the beginning?

A

No. Usually, there are so-called capital calls. This means that the LPs generally do not invest 100% of capital contributions at initial fund closing. GPs then do capital calls for needed capital. There are penalties against LPs in case of failing to meet capital calls.

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16
Q

What is a typical investment limitation for the GPs?

A
  • They usually should not invest all their money into a single target but diversify into 5 targets.
  • maximum rate of borrowing
17
Q

Why is there usually a first and a second fund closing?

A

First closing: when sufficient investors committed required minimum capital aggregate for fund establishment
-> PE firm can start to invest in promising portfolio companies
Second closing: takes place several months later

18
Q

What are impersonal instruments for investor relations IR)

A

submitting:
- annual reports
- semi-annual/quarterly reports e.g. mark-to-market valuations of yet unrealized portfolio companies (net asset values NAVs)
- press releases

–> Consistent information allows accurate assessment of fund performance over time and against other funds and other asset classes.