Private Equity Fund Types, Risks and Returns, and Regulation

by Cumming, Douglas

• ISBN13: 9780470499153
• ISBN10: 047049915X
• Edition: 1st
• Format: Hardcover
• Copyright: 2010-02-01
• Publisher: Wiley

Summary

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

Introduction

Notes

References

About the Editor

The Structure of Private Equity Funds and Fund-Raising

Institutional Investment in Private Equity:Motivations, Strategies, and Performance

Introduction

Institutional Investment: Motivations and Behavior

Structure and Strategies

Performance

IPOs and Other Nontraditional Fund-Raising Methods of Private Equity Firms

Introduction

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

Introduction

Listed Private Equity: Definitions and Categorization

Terms and Definitions

Further Empirical Insights on Listed Private Equity

Investments

The Syndication of Private Equity

Introduction

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

Introduction

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

Introduction

The Canadian Context

Private Placements and the Issuers

Returns Surrounding Private Placements

Discounts

Hedge Funds' Activism: A New Trend of Convergence toward Private Equity in Public Firms?

Introduction

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

Introduction

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

Introduction

Background, Context, and Prior Literature

Regression Results

Risk and Return of Private Equity: An Overview of Data, Methods, and Results

Introduction

The Data

Results

Additional Discussion

Private Equity Fund Selection: How to Find True Top-Quartile Performers

Introduction

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

Introduction

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

Introduction

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

Introduction

The Growth of Private Equity

Dealing with Agency Problems: Contractual Arrangements

Regulation of Private Equity Funds

International Private Equity Flows

Introduction

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

Introduction

International Comparison

What Determines Emerging Market PE Activity?

Survey among Institutional Investors on the Importance of Emerging Markets' Allocation Criteria

Private Equity in Europe

Introduction

History

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

Introduction

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

Introduction

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

Introduction

Consequences for Capital Structure of Portfolio Companies

Implications for Tax Payments

Venture Capital and Private Equity in Canada: Phasing Out an Inefficient Tax Credit

Introduction

Description of 2008 YORKbiotech Survey Data

Multivariate Regression Evidence

Index

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