Korea Private Equity

Private Equity Investment Returns to South Korea

South Korea successfully recovered from the 1997-1998 Asian Financial Crises and was looking to foreign investors to stimulate growth. But after a criminal investigation into a United States private equity fund, private equity firms adopted a low profile in South Korea. Today, however, private equity investors are increasingly active in the country hoping to benefit from broke conglomerates selling off assets at bargain prices.

Private equity firms played a major role in South Korea's recovery from the Asian Financial Crisis by rescuing distressed companies from bankruptcy. Then a high-profile criminal investigation of Lone Star Funds, a Texas-based private equity firm, changed the private equity landscape in the country. Following the financial crisis, Lone Star was regarded as a savior because it poured large amounts of investment into the struggling economy. Eight years later, Lone Star Funds was investigated by South Korea for its planned sale of Korea Exchange Bank which would earn the American firm $4.4 in profits and possible evasion of South Korean taxes. Another investigation into bribery and embezzlement led to the arrest of three men with connections to the fund. The scandals led to public outcry and a general distrust of foreign investors in the country.

Today, foreign private equity investment is returning to the country in full force, as investors hope to purchase cheap assets from large South Korean companies. Major private equity firms, such as CVC Capital Partners and Affinity Equity, are eying the country and banking on a more welcoming attitude from South Korea's new government. The country's financial difficulties coupled with the declining value of the won, have made South Korea an attractive location for private equity investors specializing in buying and selling distressed assets.

The potential lies in the assets of large conglomerates based in South Korea, which are being sold off at bargain prices. Private equity firms have considerably increased activity in the country recently. Thomson Reuters reports that M&A deals involving private equity firms have more than doubled to $3.6 in value so far this year from the year before. In order to survive large to mid-size companies--many involved in mergers or acquisitions--are selling off non-essential and even core assets. Family-owned businesses, "chaebols," are suffering from massive amounts of debt and need to sell their assets to stay afloat and pay off their obligations. The debt accrued by South Korea's 30 largest conglomerates rose 59% to a combined $50 trillion won (almost $34 billion USD).

Most private equity firms that invested after the Asian Financial Crisis made huge returns, like the Carlyle Group and Newbridge Capital which both more than doubled their returns on South Korean investments. Despite such proven success, private equity investors had remained cautious following the Lone Star debacle, but a recent ruling suggests the drawn-out legal battle may be ending. That closure along with a more welcoming stance by South Korea's government has led private equity managers to reconsider the country with its new set of potential investments. Managers say that consumer goods makers are an attractive target for private equity because they are less vulnerable to the economic downturn. Financial services and pharmaceutical companies are also attractive during the economic downturn.

Although private equity investment seems to be returning to South Korea, managers expect the deals to be considerably smaller than before because of limited access to leverage in the credit crunch.

Source

Tags: Korea private equity, south korea private equity, Korean private equity, private equity investment in South Korea, Private equity investment in korea, private equity firms in south korea

Link to This Resource: Korea Private Equity

http://privateequityblogger.com/2008/11/korea-private-equity.html

Private Equity Change

Changes in Private Equity

The Wall Street Journal has a great article on the private equity's changes in light of the credit crunch and financial crisis. Also, private equity firms going private, like KKR's delayed move to be a publicly traded company, are evaluated in such a volatile market. Here is an exert, to read the full article please follow this link.

The heads of these mega-private-equity firms may also sense that there is a bigger prize at stake. With a number of investment banks fatally wounded, there is scope for other sources of capital to emerge. Alongside a number of hedge funds, the larger private-equity funds were until recently in the process of positioning themselves to provide this capital, taking the place of traditional investment banks. In a recent example, Royal Bank of Scotland sold $8 billion in bank debt to private-equity firms, including Blackstone and TPG. Entities which used to be the borrowers had become the lenders.
One of the rationales for the firms making this shift is that, for private-equity funds, redemption terms tend to be long. This gives them the edge in providing long-term capital. However, inherent in the partnership structure -- as opposed to the public structure that KKR and others seek -- is the understanding that payouts are variable and unpredictable because they are based primarily on volatile investment performance, the value of which is realized on an irregular basis. By converting to publicly owned companies, these entities place themselves at the mercy of shareholders who value regular fees over the variable and volatile ones that come from the traditional work of private-equity funds.

This presents the new providers of capital with a different form of the problem that the rest of the banking system faced recently: unpredictable assets and predictable liabilities. One way for the newly public funds to manage this mismatch is to focus on earning steady, pre-agreed management fees rather than focusing on volatile investment performance. This shifts the core work of these funds toward fee-earning work, such as corporate finance advisory services, and away from their entrepreneurial roots of buying private companies and turning them around. This may be what the private-equity behemoths have in mind, but investors need to understand that these companies will not be the private-equity funds of old -- and must adjust their expectations accordingly.

And what lies ahead for the rest of the private-equity industry? Once the behemoths move into other businesses, the asset class itself may be free from the mantra of "bigger equals better." The remaining funds will be able to focus on their original task of extracting buried value from unlisted companies. Those firms that stood their ground in the mid-deal market and ignored the ever-growing thirst for bigger funds could once again become the standard bearers for the private-equity industry. Sticking to their knitting -- that is, focusing on what investors want from them in the first place and maintaining the alignment of interests through a commitment to the underlying investment performance -- may well prove to be a shrewder move than branching out as the big boys are doing.

Tags: Private equity change, private equity changes, changes in private equity, private equity wall street journal, private equity news, private equity story, private equity article, private equity industry

Link to This Resource: Private Equity Change

http://privateequityblogger.com/2008/11/private-equity-change.html

Private Equity Pension

New Report on Private Equity and Pensions

A recent survey found that private equity firms still see pension funds as a major concern when investing.

A new survey shows that private equity deals are significantly hindered by consideration of pensions. Above all pension-related concerns for private equity firms is the probability of future life expectancies increasing, which would in turn increase the liability to the private equity firm. An increase in life expectancy would make a more costly private ownership for the firm and potentially cause the private equity firm to hesitate before investing. This is especially troubling when considering big manufacturers like in the auto-industry that have large pension liabilities.

The survey revealed that a major consideration for private equity firms was the pension liability. Of the sixteen firms surveyed, "More than 80 per cent of survey participants see making an agreement on a deal with a pension scheme’s trustees as a significant hindrance to completing a deal." This report shows that pensions are still a major obstacle for private equity firms when trying to make a deal, adding to the already difficult market for private equity deals.

Source

Tags: Private equity pensions, private equity pension fund, private equity pension, private equity pensions fund, private equity pension funds, private equity investment pension, private pension funds

Link to This Resource: Private Equity Pension

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Private Equity Turnaround

Discussion of the Private Equity Turnaround Market

Today's economic downturn may lead to an increase in the number of turnarounds performed by private equity firms. In this type of deal, a private equity firm would supply the necessary resources or capital for a distressed company to succeed, thus completing a "turnaround" of the company's performance.

I revisited a discussion published to AltAssets in 2003 with some private equity players that specialize in turnarounds. Although it is five years past, the situation for private equity firms has distinct similarities to today. Most importantly, in 2003 the market was flooded with companies failing presenting many opportunities for private equity-backed turnarounds. Today's economic downturn seems to be presenting similar turnaround targets, making this Q&A very relevant.

Where are the best opportunities?
Jon Moulton of Alchemy Partners explains the basic criteria he uses for a turnaround, "The deals that work for us as private equity players are those in which companies need liquidity to keep going, where there is a business worth saving and where we can get management control." But there are few companies that actually meet these requirements so the market for potential turnarounds becomes very small.

Another opportunity is in companies threatened by China (and India), especially the automotive industry. As the manufacturing process is outsourced to China by many U.S. and European automakers they fall into distress with excess workforce and resources. This could be a great position for a private equity firm to cut the company to the bone leaving a more efficient company with only what is necessary to survive.

What would you not consider for a turnaround?

Jon Moulton says, "We wouldn't do a large contracting turnaround. We have had no success in those and neither has anyone else. They are fundamentally feeble businesses, you never know the depth of the hole you are puttying money into and then the money at the end is usually pretty slight. I am also very suspicious these days of manufacturing. These businesses are swimming against the tide and they often have large pension and environmental liabilities. We are looking at some turnarounds in which the key issue is a dramatic restructuring to get rid of pension liabilities. It's brutal territory and a very unattractive activity for anyone to be involved with."

Again, the threat from Asia means that heavy industries are not great opportunities because countries like China can manufacture so much more cost-efficiently than Western countries. So companies focused in manufacturing industries are less attractive for a turnaround than say, the services industry, because that work cannot be outsourced abroad as easily.

Gary Klesh has several industries he is staying away from, " I wouldn't touch pharmaceuticals and other industries that are heavily reliant on research and development. I won't go into business that are reliant on the skills of particular people, services such as advertising agencies and consultancies. We are also staying away from the construction industry. But we are in negotiations with companies in all other areas that are quite sick."

What are your main obstacles?

The most obvious obstacle is labor laws and protections against downsizing companies. This is a key way in which to trim the budget and many distressed companies do have a lot of excess personnel. Moulton makes an especially relevant coorelation to today, "The not so obvious obstacle is trying to restructure when you have a sick banking system around you. It's very tough dealing with banks on a day-to-day basis - they are shell-shocked and can't make decisions." Banks that are reluctant to work with risky companies make it all the more difficult for a turnaround.

Turnarounds are not always attractive to managers so one challenge "is finding the right people. When we turn around a company, we set the strategy but we don't get involved in the day-to-day management of the business; we find other people to implement that strategy. It is very difficult to get these people. As you can imagine, turnarounds are a lot of work and there is a lot of pressure involved - it's not always an easy sell to managers."

	Jon Moulton, managing partner of Alchemy Partners, a specialist in turnarounds and public to privates in the UK
	Gary Klesch, chairman of Klesch & Co, which specialises in investing in European companies in need of restructuring
	Ollivier Lemal, directeur general of Plantagenet Capital, a US and European firm that makes early-stage venture, strategic buy-out and turnaround investments

The future of private equity turnarounds is not clear but there are more and more companies facing insolvency and private equity investment could be the best solution for filling that capital gap. Additionally, many firms need superior executives at the helm in such difficult times and private equity groups often provide management that is experienced and capable of making the changes necessary for survival.

Here is the full discussion from AltAssets

Tags: Private equity turnaround, private equity distressed, distressed private equity company, private equity turnarounds, private equity investment turnaround, private equity distressed debt company, Private Equity Turn Around, private equity investment turnarounds

Link to This Resource: Private Equity Turnaround

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Private Equity Auditors | Auditing Firms

Private Equity Auditors

Private Equity Auditing Firms

The following is a list of recommended private equity auditors and private equity auditing consultants. While the performance of their services cannot be guaranteed by this private equity website, we only work with a very small number of well established reputable firms in the industry.

1. Jordan, Patke & Associates, Ltd.

Jordan, Patke & Associates is a firm that specializes in the audits of private equity funds. Our team of experienced professionals services funds from around the country. Our focus on efficiency and extensive use of technology allows us to offer a top quality service at extremely competitive rates. Our principals and staff are known for assisting fund managers through every phase of their business, from fund formation to ongoing communication with investors and regulators.

Contact Info: Ronald S. Niemaszyk 847-382-1627 ron.niemaszyk@jordanpatke.com

BrookWeiner, LLC Certified Public Accountants

We provide audit and tax services for "40 Act Funds" including hedge and mutual funds, registered and non-registered funds. The following are some of the hedge fund mutual fund services we provide:

Audit services for offshore and domestic funds
Tax planning, preparation, compliance, and consulting
Partner tax allocations
Review of subscription documents, private placement memorandum, and operating agreements
Analysis and insight on how to improve operating and accounting processes

BrookWeiner L.L.C. is registered with the PCAOB (Public Companies Accounting Oversight Board). For more information please see our contact Sheldon Weiner directly at (312) 205-3227 or visit our website at www.brookweiner.com/.

If you would like to add your investment firm's bio here or explore other advertising options please email Theo@Peblogger.com

Tags: Private Equity Auditing Firms, Private Equity Auditors, Private Equity Auditor, Auditing Services for Private Equity Funds, Auditing Service Providers, Audit for a Private Equity Fund, Private Equity Audit

Link to This Resource: Private Equity Auditors | Auditing Firms

http://privateequityblogger.com/2008/12/private-equity-auditors-auditing-firms.html

Private Equity Layoffs

Private Equity Firms Hint at Possible Layoffs

So far, private equity employees have been more or less exempt from the mass layoffs on Wall Street. Dan Primack of peHUB reports the latest rumors that suggest this may not be the case soon:

I’ve begun asking senior industry sources about the prospect of private equity firm layoffs, and most of the replies have been in the range of probably to definitely. I’ve even heard that a few brand-name firms have begun holding internal discussions about across-the-board personnel cuts, but the talks are too formative (and perhaps speculative) for me to feel comfortable naming names.

A big reason for the potential layoffs is the lack of deals being made right now at the big private equity firms. With the massive amount of hiring during the peak of private equity, there are now a large number of unnecessary personnel. Primack notes especially the high number of analysts that have little to do with the lull in private equity deals.

Other targets for layoffs in the private equity firms are senior executives that have impressive salaries for unimpressive deal-making records. A trademark of private equity is the ability to trim the unnecessary fat from a firm's budget and it seems that this process may be used on private equity firms themselves. With less and less deal activity this may be a necessary--even saving--manuever for some private equity firms to stay afloat in rough times.

Tags: Private Equity Layoffs, Private Equity Employment, Private Equity unemployment, Private Equity Firms Fire, Private Equity Firing, Private Equity Management, Private Equity Layoff, Private Equity Budget

Link to This Resource: Private Equity Layoffs

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Yahoo Private Equity Deal

Yahoo's Kelkoo Sold in Private Equity Deal (YHOO)

After announcing that it would be cutting at least 1,500 jobs, Yahoo Inc. (YHOO) made another big decision to sell Kelkoo to a private equity firm. The sale of the France-based shopping price comparison company to U.K. based-private equity firm, Jamplant Ltd., was confirmed on Nov. 21 by a Yahoo spokesperson.

In 2004, Kelkoo was purchased by Yahoo for $576 million in hopes of boosting its global service capacity. The sale of one of its major assets adds to the shaky environment at Yahoo Inc.
Earlier this year Yahoo rejected a takeover bid from Microsoft for $47.5 billion. Then, last week Yahoo announced that Chief Executive Jerry Yang would step down for a new CEO to step in. All while it is in the process of reducing at least 1,500 jobs at the company.

Microsoft's CEO, Steve Ballmer, confirmed that Microsoft will not be resuming takeover talks with Yahoo, sending Yahoo's shares even lower. The terms of the Kelkoo deal with Jamplant have yet to be publicly disclosed. Former Kelkoo CEO disclosed the news on his blog here is the link (it may have to be translated from French though).

Source

Tags: Yahoo, Private Equity, Yahoo private equity, Jamplant, Private equity news, Jamplant Ltd. Yahoo Private Equity Deal, Kelkoo private equity purchase, Yahoo Mergers and Acquisitions, Yahoo (YHOO)

Link to This Resource: Yahoo Private Equity Deal

http://privateequityblogger.com/2008/11/yahoo-private-equity-deal.html

Private Equity CFO

Private Equity CFO | Chief Financial Officers

Over the last few years private equity firms have succeeding in attracting many chief financial officers from jobs at large public companies. These CFOs opt out of cushy, high-ranking positions to work for private equity firms and their portfolio companies.

Private equity firms are willing to compensate chief financial officers very competitively because there is a high demand for executives with experience managing a company's finances with a wide range of responsibilities including financial planning, record keeping and protecting against risk. Chief financial officers also make the move for the possibility of sharing in the immense profits from a successful private equity deal when the portfolio investment is sold to another buyer or taken public. One negative aspect for entering the private equity industry is that many private equity CFOs must move from company to company as their services are required. Chief financial officers often give up a safe and consistent job with great pay for the career in private equity but find that not all private equity firms are successful. CFOs are then faced with the decision between taking a potentially higher paying, exciting position in private equity with a risk of losing money in the new job or remaining in a stable, well-paying job with one company.

The idea of moving to a private company may be attractive to an experienced CFO because private equity-backed companies are often in a transitional period that allows for the chief financial officer to use his talents to improve the company. The challenge of taking an underperforming company and having a vital role in its success can be appealing to CFOs unsatisfied in their current work.

More Valuable as a Private Equity CFO

Despite the tech burst, which showcased the risk to those working at private equity-backed firms, many CFOs welcome the risk because the huge monetary incentive if they are able to produce positive results and make the company attractive to the public or another buyer. Additionally, chief financial officers may feel undervalued or unappreciated at a standard post within a firm. In many large public companies, the CEO often dominates the lower-level executives like the CFO but many cheif financial officers working in smaller private equity-backed companies are regarded as vital to the success of the company and treated with more attention. In private equity, CFOs are a "hot commodity" and the private equity model allows them to showcase their talents in an important way. Although CFOs are in high demand, when making the decision to transition to private equity they may have to prepare for a period of unemployment.

CFOs working in private equity have taken on a different role than they did a few years ago, according to Chad Brownstein a managing partner at ITU Ventures in Los Angeles, he says "Before, venture capital firms hired smart numbers guys from accounting firms (as CFOs) that the CEO could manage." Now it seems that private equity firms are willing to pay a CFO higher and offer a more prominent within the company. Rather than focusing mainly on accounting, today's private equity CFO also takes on a major interest in the company's capital structure and finances. Mr. Brownstein illustrates the point, “Every CFO we have is part of our network. We are working equally as hard to get the right CFO as the (right) CEO. It’s a critical role.”

As chief financial officers anticipate a greater role and higher compensation in private companies the transition from large public companies to smaller private equity firms may become more and more attractive, even with the inherent risks.

Source

Tags: Private Equity CFO, Private equity Chief Financial Officer, Private Equity Chief Financial Officer, Private Equity CFOs, Chief Financial Officer in Private Equity, private equity chief financial officer conference

Link to This Resource: Private Equity CFO

http://privateequityblogger.com/2008/11/private-equity-cfo.html

Private Equity Growth

How Private Equity Firms Promote Growth

Private equity firms vary in their investment industries, region, size and many other factors but there is a common goal among all private equity firms: to take a company with potential for growth and provide the resources necessary to realize that potential. Private equity firms do this by injecting capital, prescribing a new strategy, restructuring the company or adding new talent to the existing management team. The success of a private equity firm depends on its ability to realize the growth potential of its investments and thereby satisfying investors with profitable returns from the investment.

Private equity firms are always looking for underperforming companies that are not realizing their growth potential either because they do not have the resources necessary for expansion or they are poorly managed. Companies that are underperforming are attractive because private equity talent pride themselves in being able to take the company and turn it into a more efficient and valuable firm, using the resources available through the private equity firm. The private equity firm then hopes to profit from the held company by either holding an initial public offering or selling to another buyer, giving positive returns to the limited partners of the fund.

A key advantage of private equity firms holding a company is that it can focus on long-term needs and changes, unlike many public companies. Investors in public companies may not see the benefit of investing in a company long-term, fearing it would reduce short term investments. But with private equity funds focusing in the long-term, the fund can invest in research and development that may hurt returns in the short-term but create greater returns over time. By utilizing the vast resources available to private equity firms, many companies have profited impressively under private equity ownership. In this way, private equity can be a great way to promote a company's growth potential.

Tags: Private Equity Growth, Private Equity Grow, Private Equity Firms, How Private Equity Firms, Private equity firms growth, private equity capital, private equity performance, private equity investment

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Link to This Resource: Private Equity Growth

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Private Equity Law

Top Private Equity Law Firms

Private equity firms, along with hedge funds, have often tested the legal limits of investing and have been the subject of lawsuits by institutional investors and various entities, even the federal government. The risky practices of the private equity industry can sometimes lead to the courtroom and many buyout firms have found it wise to work closely with attorneys.

Private equity firms do not only seek lawyers for protection from lawsuits but lawyers often advise private equity firms on organizing funds' structures, drawing up and negotiating contracts. The boom in the private equity buyout industry led to the rise of many law firms specializing in private equity and the relationship between attorneys and private equity remains an important one.

PitchBook Data has compiled a ranking of the top 10 private equity law firms:

Top 10 Private Equity Law Firms 2008

Kirkland & Ellis
Jones Day
Skadden Arps Slate Meagher & Flom
Weil Gotshal & Manges
Simpson Thacher & Bartlett
Latham & Watkins
Paul Weiss Rifkind Wharton & Garrison
O'Melveny & Myers
Hogan & Hartson
Ropes & Gray

Please send me an e-mail at Theo@peblogger.com if you'd like discuss adding your law firm to the private equity law firm directory.

PitchBook Data

Tags: Private Equity Law, Private Equity law firms, private equity law firms list, list of private equity law firms, top private equity law firms, top ten private equity law firms, top private equity law

Link to This Resource: Private Equity Law

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Private Equity Companies

List of Largest Private Equity Companies

A lot of public attention toward private equity falls on large formerly public companies being backed by private equity. Companies like Chrysler and Toys R Us are familiar for many Americans and they are among the largest private equity owned companies. Private Equity Database has constructed a great ranking of the largest American private equity owned companies.

This table is constructed from Forbes' 2008 list of America's largest companies and edited to include only the companies owned by private equity firms. PE Database makes a good observation that the majority of the deals were executed between 2005 and 2007 during the boom of private equity buyouts in the United States. Private equity buyouts of public companies like those of this list are in decline. Many observers attribute this decline to the global credit crunch making it more difficult for buyout firms to obtain leverage as well as the overall instability of the economy.

List of Largest Private Equity Companies

Rank	Company	‘07 Rev (bil), (1)	Private Equity Owner (s)	Deal Size (bil)	Announced

1	Chrysler	$59.7	Cerberus Capital	$7.2	05/2007
2	GMAC Financial Services	$31.49	Cerberus Capital	$14.0	04/2006
3	HCA	$26.86	KKR, Bain Capital, Merrill Lynch Private Equity	$21.0	07/2006
4	US Foodservice	$20.16	KKR, Clayton, Dubilier, & Rice	$7.1	07/2007
5	Toys R Us	$13.79	KKR, Bain Capital, Vornado Realty	$6.6	03/2005
6	Aramark	$13.2	GS Capital Partners, CCMP, Thomas H. Lee, Warburg Pincus	$8.3	08/2006
7	Harrah’s Entertainment	$10.83	Apollo, TPG Capital, Blackstone Group	$27.8	10/2006
8	Dollar General	$9.9	KKR	$6.9	03/2007
9	Performance Food Group	$9.48	Blackstone Group, Wellspring Capital	$1.3	01/2008
10	CDW	$8.15	Madison Dearborn Partners	$7.3	05/2007
11	Hilton Hotels	$8.09	Blackstone Group	$26.0	07/2007
12	First Data	$8.05	KKR	$29.0	04/2007
13	Energy Future Holdings	$7.99	KKR, TPG Capital, GS Capital Partners	$45.0	02/2007
14	Aleris International	$6.6	TPG Capital	$1.7	08/2006
15	Hexion Specialty Chemicals	$5.81	Apollo	-	-
16	Freescale Semiconductor	$5.72	Blackstone Group, The Carlyle Group, Permira, TPG Capital	$17.6	09/2006
17	Keystone Foods	$5.58	Lindsay Goldberg	-	2004
18	International Auto Components	$5.31	WL Ross	-	-
19	Avaya	$5.1	TPG Capital, Silver Lake Partners	$8.2	06/2007
20	Pro-Build Holdings	$5.0	Fidelity Capital	-	-
21	SunGard Data Systems	$4.98	Silver Lake Partners, TPG Capital, Bain Capital, The Blackstone Group, GS Capital Partners, KKR, Providence Equity	$11.3	03/2005
22	NewPage	$4.66	Cerberus Capital	$2.3	01/2005
23	Neiman Marcus	$4.60	TPG Capital	$5.1	05/2005
24	OSI Restaurant Partners	$4.15	Bain Capital, Catterton Partners	$3.2	11/2006
25	McJunkin Red Man	$3.95	GS Capital Partners	-	01/2007

Source

Tags: Private equity companies, list of private equity companies, private equity owned companies, private equity company, companies owned by private equity, private equity public companies, private equity owned company, largest private equity owned companies

Link to This Resource: Private Equity Companies

http://privateequityblogger.com/2008/11/private-equity-companies.html

Arizona Venture Capital

Arizona Venture Capital Event| AZ Venture Capital

I was recently contacted about a venture capital and angel investor event in Sedona, Arizona. As there are somewhat less opportunities around the West coast for events like these (outside of California), I thought some readers may be interested in attending. The event is sponsored by FundingPost which has hosted over 100 sold out venture capital events in 17 cities over the last 6 years. The event includes a panel discussion and various opportunities to network with investors and other entrepreneurs. Here is the site's description of the event:

At our next Sedona event, the panel of investors will focus on Early-Stage Venture Investing - how to meet investors, pitch them, and what it really takes to get them to write you a check! We will be discussing trends in Early-Stage Investing, hot sectors, sectors that these VCs look at, things that are most important to them when they are considering an Investment, the best and worst things an entrepreneur can do to get their attention, additional advice for entrepreneurs, and, of course, the best ways to reach these and other Investors. There will be plenty of time for networking with the Investor panelists, both before the panel & afterwards at the Cocktail Party.

The information for the event can be found at FundingPost's website but here are the basic details. The event begins on Thursday, December 4 2008 with an optional pitching workshop from 11am-1pm with a 2-minute opportunity to pitch to investors and the main event is from 2pm-7pm all at the Sedona Rouge Hotel & Spa. The cost of attending the Arizona venture capital event is $75 with discounted room rates depending on party size. The venture capital speakers include Laura Sachar, General Partner, StarVest Partners Rob Moss, General Partner, Kingdom Venture Partners Craig Ballard, Managing Partner, Pacific Southwest Ventures Dee Riddell Harris, President, Arizona Angels Venture Group.

Tags: Arizona Venture Capital, Arizona Venture Capital event, Arizona Venture Capital investors, Arizona Private Equity, Arizona Angel Investors, Arizona Venture Capital Conference, Venture capital in Arizona, AZ Venture Capital

Link to This Resource: Arizona Venture Capital

http://privateequityblogger.com/2008/11/arizona-venture-capital.html

San Francisco Private Equity

San Francisco Private Equity | Private Equity Firms List

San Francisco represents a major location for private equity activities in the United States, especially in the West Coast.

Along with a widely recognized venture capital industry--spurred on by Silicon Valley tech start-ups--San Francisco has built a hub for larger private equity deals. As the technology sector matured following the dot com boom and bust, private equity firms began to invest in the now more stable and accurately valued tech companies with apparent success. Of course, San Francisco private equity is not exclusive to technologies but it is a common investment for firms in the Bay Area.

In this decade's peak in private equity, San Francisco was flooded with institutional investors eager to get in on the private equity scene. In 2004, the chairman of San Francisco's major private equity group, Hellman & Friedman, remarked after closing its $3.5 billion fund, "We could have raised any amount of money." Golden Gate Capital's managing director expressed similar sentiments when describing the easy fund raising efforts, "Marketing would have been a waste of time."

After that boom, San Francisco remains a popular location for private equity groups hoping to capitalize on both coasts. Many firms open a branch in San Francisco in addition to a typical East coast location like New York City or Boston. Along with the high amount of wealthy investors in and around the Bay Area, San Francisco private equity firms are also able to reach other cities like Portland or Seattle that have fewer private equity firms.

Surprisingly, I have not seen any free directories of private equity firms in San Francisco so I have built a list, although it is far from including all San Francisco firms. I am in the process of expanding the following list of San Francisco private equity and venture capital firms, if you know of any any private equity groups based in San Francisco please e-mail the name(s). For a directory of more than 1,000 private equity firms and their contact details follow this link.

List of San Francisco Private Equity Firms

For the contact details for over 1,000 private equity firms follow this link.

Tags: San Francisco Private Equity, San Francisco Private Equity Firms, San Francisco Private Equity Industry, California Private Equity, California Private Equity, San Francisco Venture Capital, San Francisco Venture Capital Firms, San Francisco Private Equity Firms List, San Francisco Private Equity Firm Directory

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Link to This Resource: San Francisco Private Equity

http://privateequityblogger.com/2008/11/san-fransisco-private-equity.html

Venture Capital Investment

Strategies for Obtaining Venture Capital Investment

Everyday I receive e-mails from entrepreneurs wondering how to obtain venture capital for launching a start-up or for expanding their small business. While there is no simple solution for attracting venture capital investment, here are some basic rules to keep in mind for making your business idea more attractive to venture capitalists:

Make sure your business idea is unique, but marketable: This is a very important aspect for venture capitalists because a revolutionary idea has huge profit potential. While originality is key it is nothing if the idea is not marketable. Venture capital funds invest in companies that they believe will be profitable because some of those profits are returned to investors, so an ideal proposal is very marketable/profitable and unique.

Be Honest About Your Proposal: Venture capitalists are very good at judging the authenticity of a proposal and if the numbers don't add up to your predictions they won't trust you and won't invest in you. Highlight the good aspects of your business but don't distort the facts about competition or capital needs to make it more appealing to the VC.

Get to Know the Venture Capitalist, Too: Venture capital funds typically invest in companies for a number of years so it's important that the VC is someone you can work with. While you're interviewed by the venture capitalist, you should be doing the same by getting a sense for his business ethics, management style and any factors that could potentially damage the partnership.

If At First You Don't Succeed...: Venture capital firms are notoriously fickle about selecting companies to invest in, so don't be afraid to fail in your first talk with a venture capitalist. If your business is unique, marketable and has all the components of a sound investment obtaining venture capital is possible.

Tags: Venture Capital Investment, venture capital private equity, raising venture capital, finding venture capital, working with venture capitalists, venture capital firms, venture capital funds, VC, venture capital and private equity investment

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South Africa Private Equity

Private Equity Investment in South Africa

South Africa’s private equity industry is showing promising growth in recent years, nearly doubling in size from 2006 to 2007. Africa obviously has problems in maintaining stability in many nations--both political and economic--but South Africa has been receptive to private equity and its financial markets are developing to meet the global standards. This is it is important to keep an eye on this exciting country that is gradually growing into an important emerging private equity market.

The Venture Capital and Private Equity Industry Performance Survey that analyzed South Africa’s private equity market from 2006-2007 reveals a booming economy with impressive achievements. Most notably, South Africa’s private equity industry holds R86.6 billion under management as of December 31, 2007, compared to December 31, 2006 at R59.3 billion. This is a 46% boost in the industry, a major jump that brought the percentage of South Africa’s GDP from private equity funds under management up from 1.7% to 2.8% in the same period. Another major increase from the end of 2006 to the end of 2007 was the number of funds under management by independents which rose by 74%.

Other highlights of the report from Dec. 31 2006 to Dec. 31 2007 include:
• An increase of funds raised annually from R14.5 to R15.3 billion
• Investment activity increased 270% in the one year period, spurred on by Bain Capital’s big buyout of Edcon, valued at R8.7billion
• Private equity activity reached the Global top 10 for the first time.

United States investors have shown a major interest in doing business in South Africa. 64% of funds raised during 2007 were from U.S. sources, and American investors also contributed 39% of funds raised the previous year. According to the report, this makes the United States the biggest contributor of total funds raised to date and not yet returned to investors (followed closely by South Africa and then the United Kingdom).

South Africa has demonstrated that it can maintain a stable economy that fosters growth in the private equity industry. As many investors look for regions outside the United States and UK, emerging markets like South Africa will take on a critical role in private equity.

Tags: South Africa Private Equity, South Africa Private Equity Guide, South Africa Venture Capital, Private Equity investment in South Africa, Private Equity South Africa, Africa Private equity

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Private Equity E-Book | Free to Download 100+ Page Resource

Private Equity E-Book | Free 100+ Page Resource

We have now completed creating our free-to-access 100+ page private equity e-book. We recently edited the E-Book to include the most recent and highest quality articles to be distributed to participants of the Certified Private Equity Professional designation. Those enrolled in the program receive career advice including videos, our Private Equity Career Guide, a resume template and resume coaching as well as other useful resources to help advance your private equity career. To learn more about this program visit the CPEP website.

The book may be downloaded today by typing in your primary email address and first name below:

Looking for Private Equity Training?

Tags: Lessons from Private Equity Any Company Can Use, Lessons From Private Equity, Private Equity book review, Private Equity Books, Private Equity Resources, Private Equity Education, Reviews of Private Equity Books

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Private Equity Deals

When Will Private Equity Deals Return?

According to Pitchbook Data "For the first three quarters of 2008, transaction volume for leveraged buyouts and growth capital financings was 1,268, a 34% decline from 1,935 deals over the same period a year ago." With the credit crunch and the ensuing financial crisis it has been a tough year for executing buyout deals, especially ones relying on leverage. Many banks have tightened the purse strings and are more hesitant to provide private equity firms with the leverage necessary for the mega-buyouts like during the industry's peak a few years ago. So an important--and difficult--question is when will private equity deals return? Erin Griffith from PEHUB reports some of the answers given by the panel at The Deal's 2009 PE Outlook Conference:

Martin Mannion, Summit Partners: The time is now. With discipline, we are seeing the confidence to do deals now.

Jonathan Colby, Carlyle Group: It will probably be the second half of next year before we see any real activity.

Nicole Arnaboldi, DLJ Merchant Banking Partners: It’ll be a multi-year crawl back that will start in the middle market.

Bruce Bowden, Head of M&A, Nokia: The end of this year will be a disaster, and for anything to start looking up, we’re going to need a sign. It could be late into next year.

Erin makes a good point responding to Colby's estimate: "The “second half of next year” sentiment was certainly reminiscent of something I’d heard before, say, at outlook conferences at the end of last year!" Unfortunately, this underscores an important footnote to any panel discussion like this, that it's very difficult to estimate when deals will be made more frequently. The return of private equity deals relies on many variables like investors and private equity firms regaining confidence, the financial crisis resolving, banks lending like before; all of which may or may not happen by the second half of last year. So, while it is important to hear what the big dealmakers are projecting, it's worth noting that predictions like these are probably nothing more than (highly) educated guesses.

Tags: Private Equity Deals, Private Equity Deal, Private Equity Questions, Private Equity Buyouts, Buyout Deals, Buyout reports, private equity deals volume, PEHUB, Private equity conference

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Private Equity Secondary Market | What is the Private Equity Secondary Market?

Private Equity Secondary Market

Private Equity Investors Turn to Secondaries Market

Generally, the secondary market for private equity is a market for the buying and selling of capital commitments to private equity funds by limited partners. The secondaries market has seen a large boom recently as many private equity investors are selling their investment commitments at considerably lower prices than the estimated value. The financial crisis and low performance of many private equity funds has led to this major push to 'dump' private equity investments even at a short term loss because the investors believe that it could get worse or cannot afford to remain committed to the fund as long as they are obligated. As the private equity secondary market becomes more and more popular, it's important to have an understanding of what the secondaries market for private equity is.

By definition, private equity investment is different from the public investment markets where anyone can purchase shares of publicly traded companies. The private equity secondaries market is a way for private equity investors to exchange pre-existing investor commitments, similar to public exchange markets. A big difference though is that the private equity secondaries market is involves trading illiquid assets of long-term commitments to private equity funds.

The emphasis of these commitments is long-term because limited partners typically commit to private equity funds for at least 5 years and as long as 10 years for some fund. The reason is mostly that private equity funds seek to maximize profits of portfolio companies by restructuring and reducing the areas that cut into profits. To be successful, private equity firms prefer a longer time period to make the changes and for good reason.

By having a longer time frame to carry out the adjustments, private equity firms are able to find what is best for the company's success rather than worrying over producing near-immediate returns to investors. This is also a concern of private equity for limited partners because they attach themselves to the fund for such a long time period, during which various problems could occur within the investment or beyond (such as the current financial crisis) which causes the investor to want to cash out early.

This is where the secondary market for private equity proves useful to investors who want to exit their longterm investment. Especially in times of turmoil, private equity investors may want out and in this event activities in the secondaries market surge. A great example of this is the aftermath of the Dot-Com crash where many private equity investors, especially those in venture capital funds, scrambled to sell off their investments that were rapidly sinking in value. During the time period of the Dot-Com bubble's burst and the subsequent retreat by limited partners, the volume of transactions in the secondaries market rose from an estimated 2-3% to 5%. This led to a massive influx of undervalued investments, a large amount from tech-focused venture capital funds, and after a couple years the private equity secondaries market was more reasonably priced to the actual value. This may change again, however, as many nervous or hurt private equity investors are selling off investment commitments seemingly at a much lower price than the actual value, similar to the aftermath of the Dot-Com collapse.

Types of Transactions on the Private Equity Secondaries Market

Sale of Limited Partnership Interests: The most common transaction on the private equity secondaries market is the sale of limited partnership interests. Nearly all private equity funds (mezzanine fund, venture capital fund, angel investor fund etc) can be sold on the secondaries market and many investors use this to sell capital commitments to funds to other investors hoping to benefit from what they think is a undervalued investment. There are several variations on the basic sale of a limited partnership interest: a structured joint venture is a typically more complicated exchange where the buyer and seller negotiate terms that suit both parties. Securitization is an option for investors that want some liquid assets by investing its limited partner interests into a new vehicle, often a collatoralized fund obligation which issues notes or other liquid assets to the investor in return. A stapled transaction is a negotiated agreement when a general partner is raising another fund which ties the limited partner's current fund investment to the new fund.

Sale of Direct Interests: This is different from the sale of limited partnership interests because it trades a direct investment in operating companies rather than in an investment fund. A secondary direct transaction is the sale of a captive portfolio of direct investments that must be either actively managed by the buyer or the buyer is supposed to arrange for a manager. Synthetic secondary transaction occurs when a secondary investor purchases a limited partnership holding a portfolio of direct investments. A tail-end transaction deals with the interest in a private equity investment that is nearing or has passed its expected life.

The secondaries market is of special importance as private equity investors look to the private equity secondaries market as an exit for their declining investment or to avoid expected declines.

Partial source: Wikipedia

Tags: Private Equity Secondary Market, Private Equity Secondaries, Private secondaries market, secondaries market, secondaries, private equity investors, limited partnership agreements, financial crisis, selling limited partnership capital commitments.

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Private Equity Executives Recruited

Banks Recruit Private Equity Executives Recruited

As banks have struggled to realize returns on their investments under the sagging economy, many have turned to private equity management teams for help. As reports reveal an expected 70,000 job cut on Wall Street, private equity executives are being recruited for their active managing skills.

FT reports that some banks have sought help from private equity executives to actively manage floundering companies. While banks are slashing other branches, most often investment banking, they are taking on new talent from the private equity industry. Banks are generally not skilled in improving the performance of companies, but private equity executive management teams are. Banks are outsourcing the work to private equity executives who are able to restructure firms and extract profits, an especially important ability as many of these firms face collapse if new management cannot correct the situation. Phillip Davidson of KPMG explains why banks are hiring private equity executives: “The idea is to hire people who can actively manage these companies and sit on their boards to nurture them along and put the right managers in,” said Mr. Davidson. “These are not things that banks are equipped for, so they are turning to private equity.”

According to Mr. Davidson, the private equity management teams are comprised of 5 to 15 people. He says that some of these teams were recruited by banks last year, but the demand has increased under the pressure of the financial crisis this year. So it would seem that while investment banking firms are reported today to be axing another 70,000 jobs, private equity executives are being competitively recruited by these banks.

The ability to restructure companies and increase the value of firms is an important talent that private equity executives are known for. The book, Lessons from Private Equity, offers an overview of this strategy in relation not only to private equity firms but any firm trying to increase productivity and boost value. I will be writing a review and summary for this book later this week as today's article shows that the ability to master restructuring and value-adding is crucial to succeeding in such a down market.

Source: FT

Tags: Private Equity executives, private equity investment banks, private equity banks, private equity investment, private equity CEOs, Private equity executives management teams, value-added, Private equity and the financial crisis

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Endowments and Private Equity

Universities Suffering From Low Investment Returns

The financial crisis appears to be hurting the nation's universities with many schools being forced to scale back spending and make major cuts to stay afloat. Importantly, many schools are said to be reassessing their endowment investment portfolios, which have a strong portion invested in private equity and hedge funds.

Although most universities will not release their endowment returns until the end of the academic fiscal year, June 30, however th e widespread expectation is far from optimistic. In light of the financial crisis and negative predictions of investment returns this year, many universities have imposed a spending freeze and made budget and employment cuts. During the bull market of the previous few years, many universities saw their investment portfolio returning very favorably and took on expensive long-term construction and remodeling projects for the campus. Now, it seems university administrations are rethinking bold initiatives and reigning in spending:

The president of Amherst, a Massachusetts liberal-arts college, recently said its endowment is off about 25% since June 30, when it totaled $1.7 billion. Maine's Colby College said its endowment has fallen by a similar amount since its peak a year ago. Wesleyan, in Middletown, Conn., is delaying the construction of a major science building and filling vacant positions only when necessary, to help cut $10 million to $15 million in expenses in the next few years. Cornell is freezing most hiring and delaying new projects. (Barron's)

The financial crisis' impact is not limited to the smaller colleges though, the large East Ivy-league schools Harvard, Yale and Princeton are said to be feeling the effects as well. These universities caught public attention when they received impressive returns by putting their endowments in alternative investments like private equity and hedge funds.

Yale, Princeton and Harvard have recently focused the majority of their endowment funds in private equity, hedge funds and "real" assets ranging from oil to timber. All three devoted most of their funds in those three groups with Yale and Princeton claiming 70% is invested there and Harvard invests only slightly less in the three areas at 57%. Some critics have argued that the universities should place more funds in traditional stocks, bonds and mutual funds that have less risk and the argument has been somewhat bolstered by the shaky performance of private equity and hedge funds.

As universities become more cautious of investing in private equity they have sought to sell off much of their purchased stakes to the secondary market. According to Barron's, "The going rate is said to be about 50% of stated investment values." Meaning that those limited partners turning to the secondary market are willing to sell off their investments at far less than normal, illustrating a growing concern that alternative investments are going to decline further in value than they already have.

This represents a major problem for private equity firms who rely largely on major investors like these universities for capital calls. A domino effect is also a concern for private equity groups, as pension funds could follow the universities lead; pensions funds like the California Public Employees Retirement System represent a huge percentage of capital for private equity funds. Universities using their endowments to invest in private equity has built a strong relationship and the potential loss of this investment source could spell more bad news for private equity.

Tags: Private Equity, Endowments, Endowment Private Equity, Private Equity and Colleges, Private Equity University, Private Equity Universities, Private equity Endowment investment, Harvard Endowment, Princeton Endowment, Yale Endowment

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Top Private Equity Schools

List of Top 25 Schools for Private Equity

A common question for students hoping to enter the private equity industry is what is the best private equity school? While many students enter private equity through various business schools, and attending a top-tier business school can dramatically help one's chances of working in private equity, there are some schools that offer a specific focus on private equity. For example, Dartmouth's Tuck Business School introduces business students to private equity through their Center for Private Equity and Venture Capital.

While attending a recognized business school is helpful for a career in private equity, it is not required and many professionals working in the private equity industry have taken unique paths to private equity that may or may not include earning an MBA or studying finance even. Some general partners at private equity firms or hedge funds have different backgrounds than what is stereotypical for the industries, for example the successful hedge fund manager, David E. Shaw has an advanced degree in computer sciences.

For those hoping to enter private equity, some schools increase your chances by reputation, others by directly preparing students for buyout modeling and fund operations. Private equity is a challenging environment and an educational background is valuable to entering the industry but it is open to anyone who has the desire to learn the skills necessary to succeed, a passion for working in the private equity industry and a strong work ethic. Our Private Equity Training Program is a great supplement to an MBA. To learn about our online private equity certification program which provides participants with a strong background and education in private equity, follow this link.

List of the Top 25 Private Equity Schools

Harvard Business School- Private Equity and Venture Capital: Harvard Business School is respected as one of the best in the world (if not the best). HBS offers a five day long program on private equity and venture capital in the fall. October 31–November 4, 2010 (HBS Campus) for a cost of $9,250. Additionally, Harvard offers Private Equity and Venture Capital – Asia, June 8–11, 2011 (Tsinghua-SEM, Beijing, China) $7,750 USD. For information on these programs see this page.
Dartmouth offers a private equity focused Masters in Business Administration. This still stands out to me as one of the most concentrated schools on private equity. Also the Tuck School of Business is friendly to private equity students, offering internships in the industry, private equity clubs and private equity fellowships.
University of Pennsylvania: Wharton is a great business school for private equity with Wharton Private Equity Partners, a fourteen year old association representing 2,500 alumni. This group also holds interesting private equity related events and lectures. For more info on WPEP, see here.
University of Chicago Booth School of Business: Through the University's Private Equity/Venture Capital club students enjoy a variety of year-round social events, invited presentations, and panel discussions featuring speakers from a wide range of industries. Booth's PEVC club also provides a forum for students to share experiences and discuss mutual interests in entrepreneurship, venture capital, and private equity. Finally, the club aims to enhance the sense of community at the Chicago Booth. For more information on University of Chicago's Private Equity and Venture Capital Club see this link.
The University of North Carolina Kenan Flagler: Now, this school deserves to be seriously considered simply because it offers its students an awesome opportunity to run a private equity fund. I wrote on this previously when one of the students approached me, and since then the students have launched a second private equity fund. Read that article for more information on the student-led private equity fund.
New York University: I spoke with a professor at New York University's Stern School of Business this year and he expressed his interest in expanding the school's programs and lectures on private equity. This is in addition to the current offerings on private equity such as the recent 5th Annual NYU Stern Private Equity Conference that took place this past March. This event and others are put on by the Stern Private Equity Club. See here to learn more.
Columbia University Business School: I have been really impressed by Columbia's Private Equity Program which links alumni working in private equity with current Columbia students. From their website: 'In 2007 Columbia Business School launched the Private Equity Program, which serves as the School's primary point of contact with the private equity industry, unifying students, alumni and the business community into a single network. The program is dedicated to forging ever closer ties with the private equity industry by reinforcing the School's commitment to linking theory with practice and by engaging alumni who continue to lead the development of the private equity and venture capital industries worldwide.'
Duke University: Despite Duke University's shying away from private equity in its investments, the Fuqua School of Business is very dedicated to educating its students for careers in private equity. Like other top-tier business schools, Duke runs a large private equity club as well as an asset management club and venture capital club. 'The Duke Private Equity Club is a student-run organization committed to enhancing the connection between the private equity industry and the entire Duke University community of students, faculty and alumni. Throughout the year the club sponsors events that provide educational, career and networking opportunities for its members.'
Northwestern University Kellogg Business School: Kellogg seems to provide a pretty good education in private equity with PE veterans on the faculty but really it is just a quality business school that is worth consideration no matter what your end goal is.
Yale School of Management: Yale graduated Stephen Schwarzman (but just as an undergraduate, he went to HBS for business school). But still, this is a solid business school and it hosts a popular conference on private equity every year for the last ten years that is coming up this November. See here for more information.
Stanford Graduate School of Business
University of Virginia Darden School of Business
Cornell University
Georgetown University
University of California, Los Angeles
University of Michigan
University of California, Berkeley
Massachusetts Institute of Technology
University of Texas, Austin
University of Southern California
Indiana University
Arizona State University
Emory University
University of Rochester
Carnegie Mellon University

Click here to learn more about the Certified Private Equity Professional program

Permanent Link: Private Equity Schools

Tags: Private Equity education, private equity programs, private equity schools, list of the top 25 private equity schools, top 10 private equity schools, best private equity business schools, private equity school, private equity business programs, private equity MBA

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Private Equity Portfolio

How Private Equity Portfolio Firms Can Succeed

The economic downturn and the financial collapse of this year have left many private equity firms struggling to produce returns from their portfolio companies. The executive management of these firms have an important role in the company's survival by providing clear leadership and sound strategy in unsettling times.

Mark Rittmanic is the founder of ForteCEO, a leading senior interim executive firm for private businesses in the United States. He offers private equity portfolio firms and other private businesses the opportunity to work with ForteCEO's executives--all of which have at least 20 years experience leading successful businesses--to exploit profitable areas and overcome obstacles. Mr. Rittmanic offers his thoughts on how private equity portfolio firms can survive in a challenging economy here.

"Four Survival Tips for Struggling Private Equity Portfolio Firms"

1 Immediate Renewal Leadership: A challenging economy can be a blessing when you see and react to issues that were not revealed when the tide was high, especially leaders who are not able to adapt. If you have a struggling leader with a "deer in the headlights" reaction to the business downturn, you need to take decisive action and bring in overqualified leadership to steer the ship through the storm. Since you need this assistance right now, and likely will not need this level of leadership long term, consider an interim CEO to work with the current team and help them succeed.

2 Demand Industry Expertise: Many PE firms have operational partners as a first line of defense for portfolio assistance. A prolonged downturn, which certain industries are currently facing, is no time for on the job training in a new industry. If your operating bench is light on the right industry experience, consider ForteCEO's operating executives who have led business renewals in more than 30 industry sectors.

3 Don't Assume We Have Seen the Worst: We are preparing clients in certain industries to survive 2009 with 30 to 40% lower annual revenues. At first blush, this seems impossible, and it may be with your current leadership. But taking a focused, zero-based approach with people, clients, operating expenses, product SKU's and service offerings usually results in a dramatically different view of what is necessary for survival. It just takes a leader who has done it before.

4 Get Everyone Involved: In the middle market, most great companies are based on getting extraordinary accomplishments from ordinary people. This is never truer than when the firm is under fire. Take advantage of times like these to galvanize your team around the goal of survival, which may include pay cuts and other sacrifices for all parties until you are out of the woods. Don't shield your people, landlords, vendors or other key constituents from your challenges. Make them part of the renewal effort.

By Mark Rittmanic, Founder of ForteCEO

Tags: Private Equity Portfolio, Private Equity Portfolio Firms, Private Firms, CEOs, ForteCEO, Private Equity Owned Companies, Private Firms, Private Businesses, Tips for Private Equity Portfolio Firms

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The Blackstone Group Posts Losses

The Blackstone Group Posts Loss

The Blackstone Group Posts $502.5 Million Loss

The Blackstone Group, one of the most successful private equity firms has posted a significant loss in the third quarter of 2008. Blackstone reported losses in nearly all of its businesses totaling at a $502.5 million loss. The advisory arm for Blackstone gained substantially while Blackstone's hedge fund, private equity and real estate businesses all experienced negative revenue.

The Blackstone Group's private equity business reported $68.3 million in negative revenue. The typically profitable real estate arm suffered more as the value of its assets fell considerably; Blackstone's real estate business posted $273.7 million in negative revenue. Finally, Blackstone's hedge fund operation also declined to $48 million in negative revenue. The only relief came from Blackstone's advisory business which gained 90% from the same time last year at $160.7 million in positive revenue for the period.

In a statement regarding the losses, Blackstone's chairman and chief executive, Stephen Schwarzman said "We are operating in a challenging and volatile environment. As evidenced in the third quarter, global equity and credit markets have declined substantially and we have lowered the carrying value of our fund investments.” DealBook has more on Blackstone's losses:

Blackstone’s quarterly loss was reported in what the firm calls economic net income after taxes, which excludes costs associated with the firm’s I.P.O. On a generally accepted accounting principles basis, the firm lost $365.5 million for the quarter.

Since it went public in June 2007, Blackstone, one of the world’s largest buyout firms, has become a barometer for the health of the industry. Its stock price has plummeted 75 percent since the I.P.O. Units in the company closed on Wednesday at $8.60, down about 4.8 percent.

The firm emphasized that it had a strong balance sheet, with $1.13 billion in available cash and $1.29 billion invested in liquid funds, while having only $845 million in short-term borrowings.- (DealBook)

Tags: The Blackstone Group, Blackstone Private Equity, Blackstone Stephen Schwarzman, Blackstone, Stephen Schwarzman Private equity, Private equity losses, Private Equity Blackstone Group

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Barack Obama Capital Gains Tax

President Obama May Increase Capital Gains Tax

The election of Barack Obama for President of the United States could spell bad news for the private equity industry as he will likely support increasing taxes on carried interest earned by private equity fund managers.

When President-elect Barack Obama steps into office on Tuesday, January 20th of next year, he will inherit among other responsibilities a massive deficit that he would likely seek to reduce. One of his proposals for increasing revenue to curb the deficit is the closing of tax loopholes that benefit big businesses and upper class Americans. Throughout the primary and general election Obama harped on this idea and suggested he would support altering the current tax code for capital gains.

A large part of private equity earnings come from carried interest, in which a fund's manager claims a percentage of the total profits earned of the fund when an investment is sold. While management fees are taxed as high as 35%, the carried interest is regarded as capital gains in the U.S. tax code. Instead of the average capital gains tax of 15% private equity fund managers could see their carried interest taxed up to 35%. The opposition to the current tax treatment argues that managing a fund is a service and should be taxed in the same way as other service providers like say teachers or mechanics.

The Bush administion will be replaced by an Obama administration that favors increasing taxes on carried interest earned by private equity managers. Under the Bush administration, any legislation that would change the capital gains tax stood little chance of passing. Even with the House majority being Democrats, who would likely support increasing the tax, the threat of President Bush vetoing the bill ensured that private equity managers would enjoy the same tax treatment. However, with a struggling economy, Democratic majority in the House of Representatives and the new Democratic President entering office shortly, the likeliness of increasing taxes on carried interest is far greater.

The opposition for such a change comes from the possibility that it would effect much more than private equity groups by boosting taxes on venture capital and real estate partnerships. As David Hirschmann, the CEO and President of the Center for Capital Markets Competitiveness explains: "This was viewed initially as a way to tax a few large private equity firms, without realizing that the basic tax structure is used by 2.8 million partnerships that are literally the small office building on the corner of Main Street." (CNN) While proponents of increasing the taxes on carried interest originally projected revenues from the taxes to be $25.6 billion, that estimate seems to have fallen since last year. With investor interest in private equity slipping and fewer deals being executed, the amount of revenue would likely be far below that.

Tags: Barack Obama Private Equity, Barack Obama Carried Interest, President Obama and Private Equity, Private Equity tax, Carried interest Obama, Obama capital gains tax

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Private Equity: Obama and McCain

President McCain or President Obama

This is a very important day in America, as the nation decides whether Republican John McCain or Democratic Barack Obama becomes President of the United States. In many ways the winner will likely change the course of this country, for better or worse. What are the implications for private equity under President McCain and President Obama? Before the results come in, I'd like to do a brief summary of the presidential candidates' positions on private equity and investing.

In the primary season, when Hillary Clinton was fighting off Barack Obama for president, the Wall Street Journal did a piece comparing Barack Obama to Nermal (the softer, lovable feline opposite to the cartoon character Garfield). The comparison of Barack Obama and a kitten stems from Obama being able to attract seemingly opposing endorsements.

A striking example is that Barack Obama's presidential campaign took in more contributions from private equity than any other candidate (except early-dropout Mitt Romney) in the race at $253,788 just in 2007. Mitt Romney is a more reasonable funnel for private equity donations as he is a founder of Bain Capital, but dropped out in February 2008. At the same time, Barack Obama received an endorsement from the Service Employees International Union which publicly opposes private equity (recently confronting the Carlyle Group's David Rubenstein).

It makes sense that private equity would want to invest in potentially the next president because Obama has pledged to change the treatment of the capital-gains tax. The private equity industry opposes these changes and it's possible some see the best move is to support Barack Obama so that he may reconsider if elected.

President John McCain, on the other hand, promises little change to the existing tax treatment and more importantly the treatment of capital-gains tax. Therefore, most private equity contributions to the McCain presidential campaign is in hopes of getting him elected to ensure things stay the way they are for private equity. He has received a good size contribution from Henry Kravis of KKR private equity, as well as from high-profile CEOs at investment banking firms all of which hope to see their taxes stay the same if not decrease under McCain as president. The Wall Street Journal concluded a recent assessment of which presidential candidate has the bigger support from the financial sector and found McCain to have more allies funding him.

McCain has also built support from venture capitalists based on his treatment of business taxes, specifically offering lower taxes than his Democratic competitor. This is extremely important for small businesses who have fears that President Obama would raise taxes on their startup. Bob Brady, a partner at the Carlyle Group, recently argued in a editorial titled "Why Venture Capitalists Should Support John McCain" that venture capitalists should vote for McCain concluding:

Senator Obama certainly sounds and looks good. But this important election is about policies, not personalities. And on the issues most important to venture capitalists – capital formation, taxation, economic growth, job-creating investment, free trade, and access to highly skilled workers – it is actually Senator John McCain who has advocated and voted for policies that will protect and restore the key building blocks of innovation and investment success.

Today will no doubt have an important effect on the future of this country and private equity as well. By tomorrow, if not tonight, we will know if it is President Obama or President McCain that will inherit a shaky economy.

Tags: Barack Obama, John McCain, Private Equity Barack Obama, Private Equity John McCain, President barack Obama, President john McCain, Private equity 2008 election, Election results

Link to This Resource: Private Equity: Obama and McCain

http://privateequityblogger.com/2008/11/private-equity-obama-and-mccain.html

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