公司私募股权管理及财务知识分析

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 th

2、e 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 b

3、efore 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

4、 International 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

5、 for limited liability 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

6、risk risk to the financial 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 d

7、o PE funds work? Using structures 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

8、of PE in portfoliosReturns Break to draw 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 Morav

9、ian Protestant movement C Europe 15th century 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 earl

10、y 1990sDefinition of a private equity investor -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 smal

11、ler companies, agility/flexibilityHigher risk (smaller 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

12、ALL institutional equity investmentSystemic: uncontrollable 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 failin

13、gs in the management (of company or fund), organization/processLiquidity: mostly difficult in smallcap or frontier marketsReputation: risk accepted in the listed arena?Barnellan Equity Advice Ltd 8POTENTIAL ADDITIONAL PE RISKHEAT MAP Barnellan Equity Advice Ltd9PE RISK PERSPECTIVEWhat greater risks

14、are we taking (compared to other asset classes)? Liquidity. Cannot realise investment at will. Medium Systemic. Cycle SME sensitivity to economic and market cycles = more volatile returns. MediumFinancial: execution in PE more difficult. High Infrastructure (financial, bureaucratic, judicial) can be

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

16、er 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 bondsJudgement

17、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 RI

18、SKLOWER 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

19、on an 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 t

20、argeted gross 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 grow

21、th, cash generative with 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

22、 or debt/preference all usedPrivate 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

23、 less volatile pricing over 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, favo

24、urable conditions, good choice 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 year5 year10 yearEmerging Markets PE &VC 9.9

25、13.7 7.7W Europe VC&PE (3.6) 13.5 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 to

26、o small to be included in the statisticsWide 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 ince

27、ption to end 2009 (net returns not available): 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

28、Only one may be a failure on present information (20% in 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 fund

29、s produced similar returns to non first time ones Contrary to 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% n

30、et actually good relative to the riskWhat is the premium required 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. T

31、oday?Barnellan Equity Advice Ltd 26Source: EMPEA CURRENCY RISK Not of course 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

32、uncertain cash flowsBarnellan Equity Advice Ltd 27SUMMARY SESSION 1.1PE has 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 contr

33、act PE Manager Risk is concentrated in execution so selection of right PE 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.

34、Controlling Risk through the fund structureFund structureHow they workRisk mitigationJ CurveBarnellan Equity Advice Ltd29Barnellan Equity Advice Ltd30FLOW OF FUNDS DRIVERBusiness angelHNW individualsGovts, agencies (DFIs), Banks/Pension firms, Insurance companiesLimited Partnerships (LP)Private Equi

35、ty managers (GP)Small and medium enterprises (Investee)Other funds, retailRetailsavingsBarnellan 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

36、 successive funds on good performanceLimited partnership or easily liquidated company structureCommitment 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 occurM

37、inimum economic Fund size c $20m and so not suitable for PE deal sizes below c $200,000 (fund economics)Partnership has tax transparency in many jurisdictions so can pool (commingle) different investor types STANDARD FUND STRUCTUREBarnellan Equity Advice Ltd 32FeesAdvice/mgtCapital/expenses/returnsI

38、nvestment/returns Advisory CtteeBarnellan 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 d

39、ay = First Closing, but draw down is only as requiredOther 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

40、 to 5 years (Investment Period)Normally portfolio 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 availableStru

41、cture (or regular fund raisings) is potentially wasteful 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 a

42、ble to charge investees certain fees, 75-100% of which is shared 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 Inves

43、tment Committee makes investment decisionsAdvisory Committee/Board (of 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

44、Advice Ltd 36Barnellan Equity Advice Ltd 37TYPICAL FUND CASH FLOW FOR INVESTORS$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, litigat

45、ion and reputation riskJ Curve Barnellan Equity Advice Ltd 38STRUCTURE AND PROCESS 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 st

46、ructure, diversification and other controls Execution Session 2Investment process complex/time-consumingProcess and procedures at PE Manager levelInfrastructure Poor private sector and institutional support Structure, proceduresLitigation Suppliers, creditors, third parties Fund structure, corporate

47、 governance Reputation Implicated by events in fund portfolio (environmental, social, accidents 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 manoeuvreC

48、ash starts to flow back year 4/5 Orderly investment/divestment = maximum opportunity to negotiate 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 o

49、n cashSecondary market (negotiated basis) IFC announced $500m fundBut, Investor must accept ring fencing committed funds for long periodBarnellan Equity Advice Ltd 40LIQUIDITY AND CYCLE SPECIFIC PROTECTIONSInvestment Policy Restrictions and ProtectionsDiversification requirements Set policyCountry/s

50、ector maximumsInvestment maximums per investeeOther restrictionsEnvironmental, Social and Governance Banned sectorsChange of policy requires investors consentQuarterly ReportingInvestee by investee detailsValuations either quarterly or six monthly Barnellan Equity Advice Ltd 41INFRASTRUCTUREPrivate

51、sector facilitation, strength and favourability:Ownership protectionLaw of contractJudicial redress, efficiency and transparencyCompanys act and legal frameworkTax incentives, government supportLimits on state and bureaucratic interventionEncouragement of foreign investmentAvailability of debt, liqu

52、idity of public market Barnellan Equity Advice Ltd42LITIGATION/REPUTATIONCORPORATE GOVERNANCEDelegated investment decisions to avoid investor liability GP has Investment Committee that may have independents on itGP takes the liability but indemnified except for negligence/fraudAdvisory Board of Inve

53、stors controls conflicts, valuations and audit, and change to investment policyAbility to fire GP without cause subject to high vote thresholdOther defaults on key man retention, breach of investment restrictions etcGP restrictions on ability to manage competing funds, over certain types of investme

54、nt (banned sectors)Undertaking from GP on environmental, social and governance criteria to be followedBarnellan Equity Advice Ltd43POTENTIAL ADDITIONAL PE RISKHEAT MAP Barnellan Equity Advice Ltd44Barnellan Equity Advice Ltd 45OTHER MATTERS - J CURVEIRR measured each year in the life of a FundSource

55、: CalPERSSUMMARY SESSION 1Sub contract to professional management is needed specialist skillsTo commit resource to the investment process, manager needs capital backing and longer term stabilityFund pools investors interests and diversifies exposureStructure works to mitigate risksSelection of PE fu

56、nd manager is key (wide return range between top and bottom quartile)Barnellan Equity Advice Ltd46SESSION 2. IMPLEMENTATION AND RISK MANAGEMENTBarnellan Equity Advice Ltd47WHOLE AGENDA PRIVATE EQUITY (PE) RISK?SESSION 1:PE as an asset class: history, definitions, use, risk and return, summary risk c

57、ontrol How do PE funds work? Using structures to mitigate riskSESSION 2:How PE is implemented? Using disciplines to control riskManager selectionBarnellan Equity Advice Ltd48RISK MITIGATION REVIEWPolicy and diversification portfolio construction, diversification and investment limits/allocationLiqui

58、dity diversification across vintages/fund typeCycle diversification across vintagesFund selection pre and post investment disciplines and procedures (this Session) Tax and jurisdiction offshore locationsCurrency diversification by country if regionalLiability fund structures are limited liability pa

59、rtnershipsReputation delegated decision making Barnellan Equity Advice Ltd 49 VIEW OF PE RISK CHANGED FROMBarnellan Equity Advice Ltd 50.TO?Barnellan Equity Advice Ltd 51POTENTIAL ADDITIONAL PE RISKHEAT MAP NOW THE HOTTEST BIT! Barnellan Equity Advice Ltd52 PE EXECUTION How PE is implemented? Defini

60、tion of execution/counterparty riskThe main issues for Fund of FundsAlignment and conflictsFund of Fund level risk controlMain issues for Direct PEDirect Investment risk controlPE Fund Manager selectionFocus on the people sideBarnellan Equity Advice Ltd53EXECUTION OR IMPLEMENTATION RISKOverall Risk