private euity

8/3/2019 Private Euity

http://slidepdf.com/reader/full/private-euity 1/16



2

Private Equity – A Practitioner’s Perspective

The Carlyle Group – Overview

The Fundamental Case

Investor Activity

Private Equity• Investment Criteria

• Advantages

• Issues• Prospects



Gross Market Returns: 3/15/00 – 3/30/07

S&P “500” 2.1%

NASDAQ (47.2%)

10 Yr Treasury 59.1%

30 Yr Treasury 70.3%

NASDAQ Peak To Trough: (75.7%)

S&P 500 Peak To Trough: (44.2%)

Trough

To Current **82.9%

117.4%

12.3%

20.1%

Peak

To Current

** Stock market trough on 10/9/02



Expected Returns

Fixed Income

Investor’s Concern: A Low Return Environment

Portfolio Structure

Est: 6% - 10% 2% - 4% 8% - 25%

Common Stocks

• Domestic

• Foreign

Alternatives –

Diversifying Assets

Inflation

?%



U.S. Buyout Has Outperformed Public Markets

(IRR %) 1 Year 3 Year 5 Year

S&P Total Return 10.8 12.3 7.0

U.S. Buyout

All Quartile

21.0 14.5 8.8

U.S. BuyoutTop Quartile

35.7 24.8 20.0

Source: Thomson Venture Economics, PE data as of 9/30/06 and for partnerships and investment bank affiliate or subsidiary partnerships; Bloomberg, market data as of 9/30/06



Performance by Fund Type (1996 – 2006)

0

5

10

15

20

25

30%

S e e d V C

E

a r l y - S t a g e V C

B a l a n c e d V C

L

a t e r - S t a g e V C

A l l V e n t u r e

S m a l l B u y o u t s

M i d - M a r k e t B u y o u t s

L a r g e B u y o u t s

M e g a B u y o u t s

A l l B u y o u t s

M e z z a n i n e

O t h e r P E

A l l P E

I R R %

Source: Venture Economics, 2006. Small buyouts is defined as fund sizes under $400 million and Mid-Market Buyouts is defined as funds between $400 million and $1 billion.



PE Distributions to LPs

Source: Venture Economics, Cambridge Associates.

$18

$15

$19$18

$20$18 $16

$24

$57

$70

$80

$3 $4$6

0

10

20

30

40

50

60

70

80

90

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

U S $ i n B i l l i o n s



Commitments to LBO Funds

U S $ i n

B i l l i o n s

Source: Thomson VentureXpert.

$2 $3 $3 $5

$15 $13$11 $11 $8

$13 $16$22

$30$41

$56

$87

$71

$102

$82

$44$58

$78

$176

$0 $0 $1

$224

0

50

100

150

200

$250

1 9 8 0

1 9 8 1

1 9 8 2

1 9 8 3

1 9 8 4

1 9 8 5

1 9 8 6

1 9 8 7

1 9 8 8

1 9 8 9

1 9 9 0

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6



10

(US$ in Millions)

TotalAssets Allocation

$12,426

11,520

10,835

10,400

10,000

Canada Pension Plan Investment Board 80,891 8,089 10%

Michigan Department of Treasury 50,000 7,500 15%

$207,100

128,000

69,900

130,000

56,000

% ToPE

6%

9%

16%

8%

15%

California Public Employees’ Retirement System

New York State Common Retirement Fund

Washington State Investment Board

Florida State Board of Administration

Oregon State Treasury

Institution

Pension Funds are Largest Private Equity Investors, and

Pensioners Benefit

Source: Dow Jones – Private Equity Analyst, data as of July 2006.



12

Private Equity – Investment Criteria

Industry Expertise

Management

Potential for Operational Improvement

Business Model

Debt Capacity

Downside Protection – Asset Quality “Friendly” Seller (vs. Hostile)



13

Private Equity – Investment Criteria (continued)

??? Undervalued Assets ???

Keys: (1) Proprietary Deal Flow

(2) Intense Early Involvement



14

Private Equity – The Advantages

Time Horizon

Debt Utilization / Leverage

Corporate / Management Restructuring

Aligned Incentives

Focus:

• Sell at a profit

• Management

• Debt paydown

Relationships (Fees)

Transparency … but



15

Private Equity – The Issues

Value Creation vs. Financial Engineering

Conglomerate Experience

Increased Risks – Price / Leverage / Credit Cycle

Size / Scale – Investors vs. Investment Managers

Extended Reach – Tech / Utilities / Financial Convergence

Globalization

Public Scrutiny – Regulation Hubris – “The King of Wall Street”

Permanent Capital



16

Private Equity – Looking Ahead

Broad Collapse(s) Unlikely

Highly Competitive Environment• Funding

• Investment Opportunities – Auctions

• Pressure – Terms / Fees

Increased Problem Companies / Distressed Situations

Public-to-Private – Board / Investor Awareness

Attention to “P-O-M” (Piles of Money) vs. IRR (Internal Rate of Return)

LOWER RETURNS

private euity

Documents