Module 1 Flashcards
What are the 5 channels through which an investor can access private investments?
Direct investment Indirect private equity fund Fund of fund (multiple PE funds coupled together) Co-investments Listed private equity vehicles
what is direct investment?
direct investments are investments directly into the subject company, often through M&A via investment banks
what are private equity funds?
private equity firms create funds to deploy a set amount of capital from its investors, usually for a set time (5-7 yrs) in order to provide eventual liquidity
what are fund-of-funds?
funds created by PE managers to pool investor capital and acquire holdings in many different underlying private equity funds
when do co-investments occur?
this occurs when the lead investor on an acquisition offers investors the ability to have a direct ownership stake in the company alongside a position in the PE fund
what are listed PE vehicles?
some PE firms are publicly listed, and are more liquid and accessible to common investors, and these can be either asset managers, fund-of-funds, and investee companies
what are the 4 key characteristics of investments into infrastructure
contracts, regulated pricing, concession agreements
stable cash flows, but lower return
upfront capital is high
mgmt is usually outside of ownership but has incentives tied to success
what are the general segments of infrastructure investments? (4)
Energy
Utilities
Transportation
Social infrastructure (hospitals, prisons)
what are 5 decisions that might be made by PE investors that could transform the business?
refinance to lower wacc engage in accretive M&A expand into new products / geography restructure to cut redundant staff optimize tax structure
what are the overarching types of real estate investments? (6)
office retail hotels multi family industrial senior housing
how can fixed income play a part in private investment?
private investors may provide funding to middle market companies in the various forms of debt facilities to provide a more steady and stable form of income to investors
what are “partnerships” as they relate to private investment?
most funds are organized as LP’s where the fund manager is the GP and the investors are LP’s to limit their liability to their investment - GP is responsible for sourcing deals , reporting, exiting, etc.
what is “carried interest” as it relates to private investment?
in exchange for the GP’s services, investors are charged management fees (100-200 bps) of either the capital commitment or invested capital, as well as carried interest - when an investment is realized, the GP receives a carried interest, usually equal to to a stipulated % on capital gain above a certain return rate
what are “commitment levels, calls, distributions” as they relate to private investment?
to invest into a fund, investors generally commit a certain amount of capital over a stipulated period of time, referred to commitment level
capital calls would be made to request funding from investors, thereby reducing the unfunded committment
distributions may be made to investors in the form of a return on capital
what are the main characteristics of direct investments in private companies? (8) ACRONYM
Control and influence Financial Structure Info prior to investment (due diligence) Monitoring Board representation Liquidity Rewards to asset managers Compensation of investee managers
