Independent Directors for Private Equity Funds

Independent Directors for Funds

Below is a short article on how some pension funds in the UK are asking hedge funds and private equity funds to have strong independent boards to look out on behalf of investors. I think that this is a growing trend and hundreds of additional institutional investors and family offices will be demanding this from hedge fund and private equity firms which they invest in.

Universities Superannuation Scheme, the second largest UK pension fund, is calling for hedge funds to appoint more independent directors to protect the interests of investors.

The USS plans to invest about £1.25bn in 25 single-manager hedge funds in the next two years as part of a strategy to double its allocation to alternative assets to 20 per cent. Currently, its only exposure to hedge funds is a £200m investment in replication strategies operated by State Street and Switzerland’s Partners Group. Read more...

Related to Independent Directors for Hedge Funds

• Private Equity MBA
• Private Equity Real Estate List
• Private Equity Conference
• Private Equity Real Estate
• Private Equity Forum

Tags: Independent Directors, Private Equity Fund Independent Directors, independent director of a private equity, independent board for a private equity firm

Link to This Resource: Independent Directors for Private Equity Funds

http://privateequityblogger.com/2009/07/independent-directors-for-private.html

Private Equity in Brazil

Considering Private Equity Investing in Brazil

As the American economy has tanked this year, Brazil's financial markets have demonstrated strength despite the global credit crunch. Equally encouraging is the enthusiasm for private equity and venture capital in the country. Private equity has the potential to play a huge role in Brazil's economy as only 500 of the nation's 12 million companies are publicly traded.

With such a huge pool of private companies, it's no wonder that investors are favoring the country more and more. In a 2009 survey by the Emerging Markets Private Equity Association (EMPEA) asking limited partners about their plans for investing in emerging markets, Brazil was rated the second most attractive place for investment. According to the survey, Brazil is set to receive the largest boost in net investors over the next 1 or 2 years. 17% of current emerging markets investors expect to increase their holdings in the country and 11% plan to enter the market for the first time.

One reason that Brazil's private equity industry has been less vulnerable than others is because it does not rely heavily on leverage. So, when the credit market dissolved, Brazillian private equity firms were already used to executing deals with little-to-no leverage. Further evidence for the huge potential in Brazil is that few institutional investors are investing with private equity firms, leaving a largely untapped pool of capital. Currently, Brazilian pensions funds only put 2% of their money in private equity well below the global average (8 to 10%).

The recession has also led regulators to lower Brazil's interest rate to a historic low of 9.25%. Steve Rubens of Seeking Alpha thinks this could inspire investors to move away from fixed income investments toward alternative assets. He believes that two forces are working in the private equity industry's favor, "The first is an increasingly favorable regulatory and business environment and the second is a diversity and abundance of investment opportunities appropriate for private financing."

To read more about Private Equity investment in Brazil, please see Brazil Private Equity and to read about the Future of Brazilian Markets


Tags: Brazil Private Equity Investment, Brazil Private Equity, Private Equity in Brazil, Emerging Market Brazil, Brazilian private equity, Brazil Private Equity

Link to This Resource: Private Equity in Brazil

http://privateequityblogger.com/2009/07/private-equity-in-brazil.html

Private Equity Activity 2009

Mid-Year Data for Private Equity Activity in 2009

PitchBook, a private equity-focused research firm, has published its report on private equity as of the second quarter of 2009. The findings show that private equity investors continue to wait before deploying their $400 billion in available capital.

The industry appears to be rethinking the leveraged buyout and focusing on middle-market private equity deals, financed with mostly equity and little borrowing. PitchBook CEO, John Gabbert says of the report, “PitchBook’s analysis shows that the private equity industry is currently shifting gears in a return to its roots. More attention is being paid to middle-market deals using a healthier amount of equity where private equity’s operational and financial expertise can make a big difference. ”

Total Amount Invested in PE Deal Type ($M)

BlankClick the image for a better view

Key Findings from the 2009 Mid-Year Report

• The first half of 2009 was the slowest six-month investment period since 2002 with only 407 completed investments, and just 174 of those were completed in the second quarter. However, another 44 deals, totaling $6.5 billion were announced during the quarter but have yet to close.

• In response to the current credit markets private equity investors have been using less leverage and targeting smaller operational improvement and distressed company investments. These lower and middle-market companies now account for 70% of all investments. PE firms are also strengthening their current portfolio companies through add-on acquisitions, which accounted for 43% of all buyouts in the first half of 2009.

• In Q2 2009 only the Business Products & Services and Information Technology industries were able to maintain their investment levels from the first quarter, with 54 and 29 deals respectively.

• The BankUnited Financial acquisition was the largest of the quarter and accounted for over 25% of the total invested capital for the quarter.

• The decrease in private equity investment is not due to a lack of available capital, which remains at an all time high of $400 billion. PE investors continue to raise capital and currently have enough dry powder to more than support the combined deal activity of 2004, 2005 and 2006 with the use of moderate leverage.

So half-way through 2009 private equity is still in a slump and investors are holding onto about $400 billion in capital.


Tags: buyout 2009, buyout pitchbook data, private equity activity 2009, private equity 2009 data, information on private equity, private equity report 2009 Q2

Link to This Resource: Private Equity Activity 2009

http://privateequityblogger.com/2009/07/private-equity-activity-2009.html

FDIC Private Equity

FDIC Proposes Strict Guidelines for Private Equity

The Federal Deposit Insurance Corp proposed tough guidelines for private equity firms to buy failed banks. The FDIC announced Thursday a plan that calls for private equity groups to meet strong capital requirements and commit to long-term investments, in order to purchase the collapsed banks.

The proposal requires private equity groups to consistently maintain strong capital in the banks, "specifically a Tier 1 leverage ratio of 15 percent, for three years. They would also generally have to maintain the investment in a bank for three years." Additionally, private equity groups must provide a "contractual cross guarantee," in which a firm that owns two banks allows the healthier institution to provide aid for the weaker. Private equity groups would also be discouraged from lending credit to their own investment funds, affiliates or portfolio companies. Furhermore, private equity groups owning banks would need to major disclosures about their ownership structure, giving regulators greater insight as to who is running the investment.

Bank regulators on the FDIC's board argued openly over the guidelines with some officials saying that such tough measures will only scare off private equity investors, a much-needed source of capital for troubled banks. While alternative investors may be the saving grace for the banks, as traditional sources of capital have failed to rescue them. But bank regulators are nervous that allowing private equity groups to buy banks may be less secure than with traditional investors that are subject to strict regulation by the SEC.

Yet other regulators, like Comptroller of the Currency John Dugan feel that opening up to private equity investors will help the banks. He says, "I do fear that the current articulation of the proposal has standards that go too far. There is real money and real capital that can provide savings to the deposit insurance fund." On the other side of the fence are those who defend the strict guidelines, like FDIC Chairman Sheila Bair. She argued that the requirements are necessary for ensuring the stability of the banks but admitted, "I'm not sure we have it right here, but we do have a solid document."

Private equity firms have already started to move into the banking sector. Carlyle Group, Blackstone Group (BX.N), WL Ross & Co. and Centerbridge Partners decided to invest $900 million toward rescuing Florida's BankUnited.

Quotes from Reuters


Tags: Private equity banks, private equity FDIC, private equity investing in banks, alternative investments in banks, banking regulation, FDIC Regulation private equity, buyout FDIC banks

Link to This Resource: FDIC Private Equity

http://privateequityblogger.com/2009/07/fdic-private-equity.html

Private Equity Service Provider Directory

Private Equity Service Provider Directory

Below please find a list of firms which provide services within the private equity industry. Contact Theo O'Brien at Theo@PEblogger.com to be added to this directory.

• Auditors & Accounting Services
• Fund Administration Services
  
• Marketing and Sales Consultants & Resources
• IT Consultants & Technology Services
• Attorneys & Lawyers
  

Tags: Service provider directory, Private Equity Service Provider Directory, private equity attorneys, private equity accountants, private equity auditors, private equity marketers

Link to This Resource: Private Equity Service Provider Directory

http://privateequityblogger.com/2009/07/private-equity-service-provider.html

Mechanical Trading Systems by Richard Weissman

Mechanical Trading Systems

Richard Weissman introduces the reader with a process-driven approach to trading. In addition to the development of mechanical trading systems, the significance of trader psychology is discussed throughout the book. Mr. Weissman calls it the framework of “reprogramming the trader.” He provides a clear understanding behind the conceptual development of mechanical trading systems as well as demonstrates possible mistakes by system developers and ways to avoid them. His main lesson for the reader is that flexibility enables traders to succeed in all kinds of trading environments.

Dispelling Myths and Defining terms

In this chapter the author emphasizes more on mathematical technical analysis than classical technical analysis. He also explains why mathematical way of analyzing is an ideal component for mechanical trading systems than fundamental or interpretive analysis and thus claims this as an apt method for generating profits

Mathematical Technical Analysis

Introduces the two basic flavors of mathematical technical indicators which are mean aversion and moving averages. The chapter also explains how these indicators can be transformed into comprehensive trading systems through the inclusion of various risk quantification parameters such as volatility bands and percentage value of trading instrument.

Trend Following Systems

By going through this chapter one can figure out how even a simplistic of the systems can produce a respectable rate of return while enduring relatively moderate worst peak-to -valley drawdowns in equity. The reader can also understand why certain asset classes tend to trend more than others

Mean Aversion Systems

Examines why certain asset classes display a greater propensity toward mean aversion than others and includes examples of no directionally biased mean aversion systems and mean aversion systems that employ a trend following filter.
Short term Systems

One can understand what short term volatity really means by going through the concepts of swing and day trading. It helps the reader to explore what unique personality traits are needed to overcome the same.

Knowing Oneself
Provides the reader a comprehensive review of major categories of trader types (trend following, mean aversion) as well as the typical time frames (long term, day trading, swing) in which they operate. Helps the reader to identify the flaws in trader psychology. Once the reader has identified their innate trading personality, a step by step transformational process via utilization of different types of mechanical trading system and psychological tools is outlined

System Development and Analysis

This chapter examines some of the benefits and limitations of mechanical trading system, optimization studies, development of trading system philosophy statements and the pros and cons of various methodologies for measuring trading system performance. It also looks at the downside to system development and how to resolve these problems: data curve fitting, parameter curve fitting, data integrity issues and slippage.

Price Risk Management

Discusses the various price risk management methods such as stop loss and volumetric price risk management .Coverage of volumetric price risk includes both Martingale and anti-Martingale position sizing techniques such as frictional position sizing and value at risk. Other techniques covered include the study of worst-back tested peak-to-valley equity draw downs, static volumetric tests, stress testing and system losses as a percentage of total equity under management. Finally the chapter examines the psychological aspects of price risk management and shows how utilization of mechanical trading systems can aid in fostering confidence during drawdowns.

Improving Rate of Return

In this chapter the author discusses how can one improve the overall rate of return by using these three methods

· Addition of various low or negatively correlated assets such as foreign exchange, crude oil and futures

· The staggering of parameter set trigger levels for the same system

· Combination of mean aversion and trend following systems within a single trading account

Discretion and System Trading

This chapter examines how a trader’s knowledge and experience can be utilized within the framework of mechanical trading system

Psychology of Mechanical Trading

Here the author relates the link between mechanical trading systems and transformational psychology, explaining in detail issues such as self worth, single-mindedness, discipline ,nonattachment to result’s of one’s actions and realizing of old emotional patterns.

Related to Mechanical Trading Systems by Richard Weissman

Tags: book review, Mechanical Trading By Richard L.Weissman, Mechanical Trading systems, Richard L.Weissamn, Technical analysis

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Due Diligence Experience

Value of Experience in Private Equity Due Diligence

Carried Interest has a great post on the value of experience during due diligence. While private equity due diligence has made great strides in recent years, with the current package including much--if not all--of the following aspects:

1. Market and strategy analysis by a consulting firm to test and validate the commercial thesis behind the investment
   
2. Financial and tax review by an accounting firm
3. Legal review
4. Insurance analysis
   
5. Environmental risk assessment
6. Management team background checks and capability review by an HR consultant.

While such a due diligence package is more effective than what used to pass for investigation, you cannot overlook the value of having an experienced veteran of the private equity industry considering the deal. As GP of Carried Interest writes:

McKinsey may do a great job of mapping out the market structure, analysing segment profitability, testing growth assumptions, and so on. But there's nothing like having a recently retired CEO by your side when you tour the factory, interview customers, or hold question and answer sessions with management.
He'll be the person who notices that the overhead cranes in the workshop belong in a museum and need to be replaced immediately. Or warns you that a major supplier has been bought by the competition and will probably cut off distribution. Or remembers that this particular company always had a problem keeping good sales reps.

I think it's hard to understate the importance of returning to your basic due diligence in addition to all of today's due diligence, especially that which is outsourced to other specialized consulting firms. By bringing a person with years of experience in buyouts, you supplement your due diligence research with another perspective on the deal.


Tags: Private equity due diligence, private equity research, private equity experience, private equity firm due diligence, due diligence experience

Link to This Resource: Due Diligence Experience

http://privateequityblogger.com/2009/07/due-diligence-experience.html