Private Equity : Fund Types, Risks and Returns, and Regulation

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  • Edition: 1st
  • Format: Hardcover
  • Copyright: 2010-02-08
  • Publisher: Wiley
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This book provides a comprehensive view of private equity by describing the current state of research and practices. The chapters herein discuss the structure of private equity funds and fundraising, the structure of private equity investments with investees, financial and real returns to private equity, and international perspectives on private equity and the regulation of private equity markets. Part I of this book covers the structure of private equity funds and fundraising. Part II of this book focuses on the structure of private equity investments with their investee firms. Part III of the volume considers both financial and real returns to private equity. Part IV of this book provides analyses of international differences in private equity markets, many of which are attributable to legal and regulatory factors.

Author Biography

Douglas Cumming, CFA, PHD, JD, is an Associate Professor of Finance and Entrepreneurship and the Ontario Research Chair at the Schulich School of Business, York University. His research is primarily focused on law and finance, market surveillance, hedge funds, venture capital, private equity, and IPOs, and he has published over fifty refereed articles in leading journals. Cumming was the recipient of the 2009 Canadian Institute of Chartered Business Valuators Research Award, the 2008 Paolo Baffi Centre on Central Banking and Financial Regulation Research Award, the 2008 AIMA Canada-Hillsdale Research Award, the 2005 PWC Global Competency Research Excellence Award, and the 2004 Iddo Sarnat Annual Memorial Award for the best paper published in the Journal of Banking and Finance. He is a research associate with numerous financial and educational groups, and consults for a variety of governmental and private organizations, including Wilshire Associates. Cumming is the coauthor (along with his wife, Sofia Johan) of Venture Capital and Private Equity Contracting: An International Perspective.

Table of Contents

Introduction to Private Equity
About the Editor
The Structure of Private Equity Funds and Fund-Raising
Institutional Investment in Private Equity:Motivations, Strategies, and Performance
Institutional Investment: Motivations and Behavior
Structure and Strategies
IPOs and Other Nontraditional Fund-Raising Methods of Private Equity Firms
Recent Trends in the Private Equity Industry
Traditional Fund-Raising Methods
Nontraditional Fund-Raising Methods
Private Equity IPOs: Performance and Implications for the Future
Sovereign Wealth Funds Complementing and Substituting for Private Equity Investments
Listed Private Equity
Listed Private Equity: Definitions and Categorization
Terms and Definitions
Further Empirical Insights on Listed Private Equity
The Syndication of Private Equity
Motives for Syndication
Partner Selection
Structuring and Managing the Syndicate
Syndication and Performance
The Future of Syndication Research
The Structure of Venture Capital and Private Equity Fund Portfolios
Why the Structure of Venture Capitalists' Portfolios Matters
Optimal Effort Levels
Optimal Portfolio Size and Profit-Sharing Rule
Empirical Tests
The Rise of the PIPEMarket
What Is a PIPE?
Contract Terms in PIPE Offerings
Firms Issuing PIPEs
Investors in the PIPE Market
The Role of Placement Agents
Issues in the PIPE Market and SEC Regulations
The PIPE Market Down the Road
Private Placements by Small Public Entities: Canadian Experience
The Canadian Context
Private Placements and the Issuers
Returns Surrounding Private Placements
Hedge Funds' Activism: A New Trend of Convergence toward Private Equity in Public Firms?
Hedge Funds and Private Equity: Market Data and Trends toward Convergence
Hedge Funds' Approach to Activism
Features of Targeted Companies
How Hedge Funds Engage a Fight against Incumbent Management
Clinical Study of Carl Icahn versus Time Warner, Inc
Financial and Real Returns to Private Equity
Projection of Private Equity Fund Performance: A Simulation Approach
Related Literature
A Simulation Approach for Venture Capital Performance Projection and Risk Management
Simulation Results for Two Fictitious Venture Capital Funds
Value Creation in Middle-Market Buyouts: A Transaction-Level Analysis
Background, Context, and Prior Literature
Regression Results
Risk and Return of Private Equity: An Overview of Data, Methods, and Results
The Data
Additional Discussion
Private Equity Fund Selection: How to Find True Top-Quartile Performers
Hypothesis Development
The Research Approach
Measurement and Operationalization
Which Factors Correlate with Future Performance?
Random Choice versus the Crystal Ball: An Approach to Measuring PE Fund Selection Efficiency
The Peracs Private Equity Selection Efficiency Measure
The Selection Efficiency of Performance-Based Fund Selection Rules
Shortcomings of the Traditional Benchmarking Approach
Using and Interpreting the Right Public Market Benchmarks
Advanced Private Equity Benchmarking Based on Deal-Level Benchmarks
Quantitative Due Diligence Case Study: Advanced Private Equity Benchmarking
The Fund Selection Efficiency of Advanced Private Equity Benchmarking Techniques
Real Effects of Private Equity: Empirical Evidence and a Research Agenda
Evidence of the Real Effects of Private Equity
Research Agenda
Employment,Wage, and Productivity Effects of Private Equity Transactions
The Universe of Private Equity Transactions
Task of the Chapter
Employment and Productivity Identities
Employment, Wage, and Productivity Effects
International Perspectives on Private Equity and Regulation
Valuation and (Financial) Disclosure in the Private Equity Industry: Institutional Set-Up, Incentives, and Empirical Analysis
Institutional Setup
Main Problems and Conflicts of Interest
Incentives for Voluntary Disclosure versus Mandatory Disclosure
Disclosure and Reporting Patterns of Venture-Backed Portfolio Firms
Private Equity Regulation: A Comparative Analysis
The Growth of Private Equity
Dealing with Agency Problems: Contractual Arrangements
Regulation of Private Equity Funds
International Private Equity Flows
A Brief Overview of International Fund-Raising
International Investments of Private Equity Funds in Western Europe, North America, and Australia
Private Equity in Emerging Markets
Conclusion and Avenues for Research
Private Equity in Emerging Markets
International Comparison
What Determines Emerging Market PE Activity?
Survey among Institutional Investors on the Importance of Emerging Markets' Allocation Criteria
Private Equity in Europe
The Structure of Private Equity Funds
Private Equity Investment
Internationalization of Private Equity
Private Equity Performance
Private Equity and Leveraged Buyouts in Italy: To Prohibit or Not to Prohibit, That Is the Question
The Buyout Market and Its Puzzling Trend
The LBO Scheme and Related Criticisms
The LBO Legal Environment: Past, Present, and Future Trends
The Economic Impact of the 2004 Reform
Venture Capital and Private Equity in Germany
The Development of the German Venture Capital Industry
Going Public as an Exit Route for Venture Capital and the Performance of Venture-Backed IPOs in Germany
Private Equity in Denmark: Capital Structure and Taxes
Consequences for Capital Structure of Portfolio Companies
Implications for Tax Payments
Venture Capital and Private Equity in Canada: Phasing Out an Inefficient Tax Credit
Description of 2008 YORKbiotech Survey Data
Multivariate Regression Evidence
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