Alternative Investments

Investors Turning Away From Alternative Assets

Following the banking crisis and Bernie Madoff's large-scale fraud, investors have reason to be anxious. A survey by Quinnipiac University and Greenwich Roundtable sheds some light on investors' attitudes.

The latest survey reveals that investors are less confident in alternative investments and the regulatory agencies. According to Steve McMenamin, executive director at the Greenwich Roundtable, "Leverage, liquidity, and lack of confidence are still keeping the sophisticated investor on the sidelines. We have never seen so many rational, cool-headed limited partners refrain from making future commitments to alternatives."

Quinnipiac University and Greenwich Roundtable interviewed almost one hundred institutional and private investors at the beginning of 2009 to find the following results:

Asset Allocation and Market Outlook

• Over the past quarter, more than one third of participants signaled that they had lowered their allocations to alternative investments while 54 percent of participants are keeping their allocations constant.
• Close to 50 percent of respondents believed that asset prices will need to stabilize for a period of six months to a year before investors return to the markets.
• Thirty percent of managers felt it will take a year or longer for market conditions to improve.

Gates

• One third of participants said that between 10 percent and 40 percent of managers are raising gates or suspending redemptions.
• Close to one-quarter of managers indicated dissatisfaction with current fund gate structure.
• About 10 percent of investors felt that gates were being abused.

Madoff

• Approximately 45 percent of members felt that better oversight by the SEC could have prevented the fraud.
• More than 28 percent of respondents believed that any due diligence should have raised enough red flags to preclude investing.
• Twenty-two percent of investors said that verification by auditors could have prevented the Madoff scandal.

Regulatory Agencies

• More than 72 percent of members voiced a negative view of the SEC.
• Ninety-seven percent of respondents believed the rating agencies as ineffective.
• Close to 50 percent of investors had a positive view of the Federal Deposit Insurance Corporation.
• About 47 percent of participants had a positive view of the Federal Reserve Board.
  

Results from this Source

Tags: Private equity survey, alternative investments, private equity alternative investments, private equity surveys, private equity investors, institutional investors, private equity

Link to This Resource: Alternative Investments

http://privateequityblogger.com/2009/03/alternative-investments.html

Gulf Private Equity

Gulf Private Equity Returns Expected to Rise

Private equity returns in the Gulf region are expected to soar, at least according to the chief executive of Abraaj Capital. At a recent private equity conference in Dubai, Arif Naqvi predicted, "The private equity industry in this region is going to enter a phase where I believe that the returns we have seen over the last few years will be dwarfed by what we are going to see."

As large American private equity firms like the Carlyle Group and KKR are eying the region for potential investment opportunities. Carlyle Group recently announced its first $500 million Middle East and North Africa fund. Arif Naqvi explained why the Gulf may be an appealing prospect for foreign private equity investors:

“The public markets are paralyzed and closed, not just regionally but globally. Well, we are the alternative option. Private equity has a good name in this region. People have seen how value has been created

Although he sees many private equity investors turning to the region, Naqvi urged investors to use judgment and due diligence when investing. Investors should, Naqvi suggested, take a long term approach and to become more knowledgable in industries they invest in.

Source

Tags: Private equity gulf, private equity industry, private equity middle east, private equity carlyle group, carlyle group, private equity middle east, private equity north africa

Link to This Resource: Gulf Private Equity

http://privateequityblogger.com/2009/03/gulf-private-equity.html

Private Equity Summit

Key Quotes from Global Private Equity Summit

The annual Reuters Global Hedge Funds and Private Equity Summit took place March 23-25. This year's summit seems especially important for private equity as the traditional leveraged buyout model has received more and more criticism and the industry faces the prospect of increased taxes on carried interest. Private equity has struggled in the economic downturn and fund raising has become especially difficult for many private equity firms. Reuters has provided some of the key quotes to come from the Summit:

Laura Wang, the co-founder and managing director of Asia Alternatives:

"Anybody who's fund-raising right now I would say is banging their head against a wall."

"Anybody who has a fund of fund in their name is going to be looked at more closely."

The managing director of Societe Generale, Timothee Bousser said:

"A lot of the global macro players who used to wake up at night to trade Asia because they had things to trade and volatility was very high... are now not waking up at night.

"They are watching to see if their seat is still there. They are facing redemption."

Frank Tang, the CEO and managing partner for Fountainvest Partners had an optimistic prediction:

"As a private equity investor, we don't have to wait for the economy to recover first before we put in the money, that would be too late.

"I think we'll be very busy for the next three years. This is exactly the time that private equity investors can play role, when perhaps there are certain public market dislocations ... I think the next two, three, four years will really be a golden period for us."

For more information from the summit check out Reuters' coverage.

Tags: Private equity summit, private equity conference, private equity and hedge fund summit, Reuters private equity conference, private equity news, private equity and hedge funds

Link to This Resource: Private Equity Summit

http://privateequityblogger.com/2009/03/private-equity-summit.html

Entrepreneur Risk

Angel Investors That Entrepreneurs Should Avoid

Angel investors can help grow your business and while they are often beneficial there are some types of angel investors to look out for. These angel investors will often to do more harm than good for your business.

Angel Investors To Avoid:

Control Freak Angel Investor: This angel investor is a great source of capital but the moment your business hits a pothole, the investor is ready to start controlling your business. The control freak angel investor usually relies on special clauses in the contract that give him more power if you fail to perform a duty. This is how a control freak attempts to take over your business and run it as his own, thus creating a tension between his tendency to interfere with the entrepreneur's creative control.

Micro-Manager Angel Investor: On the surface, this looks like the ideal investor; he wants to lend you the capital to grow your business and he offers his expertise, for free. However, after a while it becomes apparent that this investor tries to involve himself in every aspect of your business. The angel investor will either annoy you by trying to offer help in the simplest tasks or he will be so worried over his investment that he checks on every single operation. While some micro-managing angel investors will simply exit the investment, it's not always the case. Some become litigious investors.

The Litigious Investor: The litigious investor knows you lack the funds to fight a lengthy court case so they will look for any opportunity to take you to court. Rather than helping your business succeed, this type of angel investor tries to squeeze money out of you through threats, intimidation and legal action. The litigious angel investor looks for the slightest error--failing to send him stock certificates, failing to keep him informed in a timely manner, etc. Some entrepreneurs certainly should be taken to court but there are some angel investors that exploit this means for their own gains.

The Street has some tips for avoiding these nightmare angel investors:

• Whenever possible, only accept investments from credible, professional investing organizations -- not private individuals.
  
• If you are a raw start-up and have no choice but to accept investments from private "angel" investors, do the following: Ask what other companies they've invested in and talk to the CEOs of those companies to find out what kind of investor they've been. Also, make sure your lawyer writes the investment document -- not your investor. This document should be standard for all your investors and not negotiated on a one-on-one basis. Watch out for any attempts to add clauses that can come back to bite you. And don't eat any soup that tastes funny.
  
• Whenever possible, hire an investment banker to prepare a proper Private Placement Memorandum that's consistent with National Association of Securities Dealers requirements. We generally refer to PPMs as "anti-investment" documents because they warn the investor about everything that could potentially go wrong, minimizing any basis for a lawsuit.
• Divide your investors into two categories: pure investors and those you feel may bring additional value. For those in the first category, don't encourage or allow them to "get actively involved" in the company. Be polite but firm in telling them you'll keep them informed of your progress through written means only. If you want more active involvement, you'll ask them to formally join an advisory board or the board of directors. However, if you do so, there will be strict, written guidelines as to what is expected.

Tags: Angel investors, angel investor risks, angel investor entrepreneur risks, angel investing, entrepreneur risk, angel investing risk, angel investor

Link to This Resource: Entrepreneur Risk

http://privateequityblogger.com/2009/03/entrepreneur-risk.html

Treasury Secretary Timothy F. Geithner | Bad Asset Plan

Timothy F. Geithner

Treasury Secretary Timothy F. Geithner

I believe that the Obama administration may have a hard time attracting many hedge fund and private equity groups in supporting Timothy Geithner's plan on cleaning up toxic bank assets. Since Obama has taken office the US government has been playing with the idea of regulating hedge funds, discussing decreasing their capital gains tax privileges, and in some circles limiting their pay. This combined with the recent actions against AIG and UBS make many funds will be careful in what they commit to. A favor done today may be a burden tomorrow.

Obama administration officials worked Sunday to persuade reluctant private investors to buy as much as $1 trillion in troubled mortgages and related assets from banks, with government help.

The talks came a day before the Treasury secretary, Timothy F. Geithner, planned to unveil the details of the administration’s long-awaited plan to purchase troubled assets, meant to remove them from the balance sheets of banks and, in turn, spur banks to lend more money to consumers and companies.
__________

“The deal is good, but it’s not worth it if I’m buying myself into a retroactive tax or a Congressional hearing,” the chief executive of a major investment firm said, insisting on anonymity because he did not want to seem at odds with the Treasury Department in the event that his firm ends up participating. source

Tags: Treasury Secretary Timothy Geithner, Timothy Geithner, Toxi Asset Plan, Bad Assets Investment Plan

Link to This Resource: Treasury Secretary Timothy F. Geithner | Bad Asset Plan

http://privateequityblogger.com/2009/03/treasury-secretary-timothy-f-geithner.html

Private Equity in China

Private Equity Investing in China

Private equity investors are adjusting with onshore investments, as onshore "round-trip" transactions have become more difficult to carry out in China. A new report from an international law firm reveals that although there are still opportunities for private equity investments in China, there are some significant barriers created by the Chinese government.

So-called "round-trip" investments are becoming increasingly difficult to carry out in China. This transaction occurs when an investor places money in an offshore holding company to gain an indirect share in a company located in China. Western investors like "round-trip" investments because they provide several benefits such as common and preferred stock, and valuation adjustments.

Since 2005, however, the Chinese government has been tightening restrictions, making it difficult to establish the offshore entity. According to the report, this has "made private equity deal structuring extremely difficult." Private equity investors have adjusted by turning to foreign investment enterprises (FIE), usually as a joint venture. FinanceAsia explains how investors are using FIEs:

With regards to capital structures FIEs do not have shares. Instead, an investor's interest is represented by an undivided percentage of the FIE's registered capital, the capital paid in by investors. This interest is not freely transferable since a transfer of equity requires not only the approval of the government and the entire board, but for the FIE's documents to be changed too. Therefore, one recalcitrant board member can scupper any transfer by either refusing to allow the transfer or by not allowing for the relevant documentation to be changed.

A foreign invested company limited by shares (FICLS) is another form of the FIE which Dechert predicts will become a more attractive option for private equity investors.

An FICLS can, in theory, have differing classes of equity, and it is the only FIE that can be listed on the stock exchange, allowing an exit via an initial public offering. Compare this with, say, the inflexibility of equity joint ventures, where equity rights and board representation must be set in accordance with equity percentages.

Private equity firms seeking to exit an investment will prefer the offshore transaction to the onshore:

...the onshore transaction offers fewer options than its offshore equivalent, which can often be concluded without government approval by the sale of the holding company. It might be necessary to sell the foreign-held equity to domestic Chinese investors—an increasingly likely option if the number of renminbi equity funds continues to rise. A listing in Shanghai or Shenzhen might be possible, but this faces significant regulatory hurdles, says the report. This is the route that FIEs are already taking.

The report concludes: "Investors equipped to adapt to transaction and exit structures unique to onshore direct investments will have at their disposal a broader range of alternatives and will be better-positioned than their competitors in a market recovery."

Primary Source

Tags: Private equity in China, private equity Chinese, private equity China, private equity Asia, Private equity Hong Kong, onshore investments, offshore holding company, private equity investing

Link to This Resource: Private Equity in China

http://privateequityblogger.com/2009/03/private-equity-in-china.html

Private Equity Investing in Banks

Bernanke Hopes For Private Equity Investing In Banks

Federal Reserve Chairman Ben Bernanke gave a hopeful forecast in a rare interview on "60 Minutes." Mr. Bernanke began the conversation with a surprisingly optimistic prediction saying "I do think we will see the recession coming to an end probably this year. We'll see recovery beginning next year, and it will pick up steam over time."

While much of the interview covers the Federal Reserve's actions throughout this economic crisis, Bernanke made some interesting remarks about the need for private equity to stimulate the economy. Bernanke highlighted the need for private equity firms to invest in struggling banks as a crucial step in the recovery process:

"One sign would be that a large bank would be successful in raising private equity. Right now all of the money is sitting on the sidelines saying we don't know what these banks are worth and we don't know if they are stable, and they are not willing to put their money into the banks."

Skip to the end of this video for his comments on private equity or check out the full interview here:

While the Federal Reserve has made some promising motions to invite private equity firms to invest in banks, some are arguing that it has not done enough. The Federal Reserve has loosened some regulations that prevent private equity firms from investing in banks for example private equity firms may now hold bank board seats and communicate with management. (For the Federal Reserve's changes to the banking regulation see this document.)

John Douglas, the chairman of the banking and financial institutions group at Paul Hasting's, offers an interesting take on the loosened regulations for private equity in banks. He argues that the Federal Reserve has not gone far enough and that private equity firms should be allowed to assume a controlling interest in a bank. Douglas believes that it is a good opportunity for private equity firms and that they should be allowed to invest in the banks providing them with much needed capital. Here he is talking about private equity's role in banks:

Tags: Private equity, private equity federal reserve, private equity recession, private equity Ben Bernanke, Private Equity banks, private equity investing in banks, private equity investment banks

Link to This Resource: Private Equity Investing in Banks

http://privateequityblogger.com/2009/03/private-equity-investing-in-banks.html

Buyout Funds and Venture Capital

Private Equity Lost More Value than Venture Capital

According to Cambridge Associates new fund performance indices, private equity firms lost more value for their investors than venture capital firms did in the first three quarters of last year. Non-venture capital private equity firms fell 8.9% through the third quarter of 2008, while venture capital firms lost nearly half that, losing 4.26%. More from peHUB:

Cambridge Associates has released new fund performance data, which shows that private equity firms (buyout, growth equity, mezz) lost more value for limited partners than did VC firms, during the first three quarters of 2008. Not just actual dollars — of which buyouts simply has more — but in terms of percentage (net of fees, carried interest and other expenses). And given what we know about Q4, it’s a reversal of fortune that can be expected to accelerate.

Specifically, non-VC private equity firms were down 8.9% through Q3 2008, compared to a negative 4.26% mark for VC funds. The gap is even more pronounced for one-year performance (Q3 07-Q3 08), where buyout firms are at -5.5% compared to -0.9% for VC funds. They both suck, of course, but VC sucks less.

Things flip around once you begin looking at three-year and five-year performance. Venture has the lead on 10-year, but expect that to disappear once the tin mark signifies the dotcom bust rather than the dotcom boom.

The Cambridge Associates data is based on a sample of 748 private equity firms raised between 1986-2008, and 1,238 VC funds raised between 1981-2008. Also worth noting that Cambridge’s results are more favorable to the VC industry than are Venture Economics’ results. Not in terms of this specific issue of YTD buyouts vs. VC, but just in terms of overall VC benchmarks.

If you'd like to see the venture capital and private equity firm performance data follow this link to Cambridge Associates.


Tags: private equity, venture capital, private equity value, venture capital value, private equity funds, venture capital funds, private equity data, private equity cambridge

Link to This Resource: Buyout Funds and Venture Capital

http://privateequityblogger.com/2009/03/buyout-funds-and-venture-capital.html

FamilyOfficesGroup.com Re-Launch

FamilyOfficesGroup.com Re-Launch

Our team has just re-launched FamilyOfficesGroup.com. The site now has an upgraded appearance, more free-to-access articles on family offices and many resources related to both UHNW philanthropy and alternative investments.

To learn more about family offices or to see our new site please visit http://FamilyOfficesGroup.com. Here are the most popular articles from this site:

• Family Office Jobs
• Single Family Office Investment Performance
  
• Philanthropic Giving
• Financial Advisor Marketing
• Family Office Services
• Family Office Wealth Management
• Single Family Office
• Family Office Resources

Tags: family offices, family office, alternative investments, private equity, philanthropy, philanthropic, wealth management, investments, hedge fund, hedge funds, real estate

Link to This Resource: FamilyOfficesGroup.com Re-Launch

http://privateequityblogger.com/2009/03/familyofficesgroupcom-re-launch.html

Family Office Database | Databases of Family Offices

Family Office Database

Family Office Database Option

Looking for a database of family office contacts?

Please complete the form below and a professional from the FamilyOfficesGroup.com will be in touch shortly.








Tags: Family Office Database,Family Office Databases,Family Offices Database, Database of Family Offices, Directory of Family Offices, Single Family Office Database, Multi-Family Office Database

Link to This Resource: Family Office Database | Databases of Family Offices

http://privateequityblogger.com/2009/03/family-office-database-databases-of.html

Nordic Capital

Nordic Capital's Auto Parts Company Files Bankruptcy

The secondaries market has been seen as a point of optimism for the struggling private equity firms during the credit crunch. However, Deal Journal pointed out Friday that Nordic Capital's recent purchase in the secondaries market has filed for bankruptcy, suggesting that it could be a sign of what's to come in for private equity secondaries buyouts.

Since the purchase of Plastal eight years ago from Gilde Investment Management, Nordic Capital has sunk more than $150 million into the auto parts manufacturer.

Nordic Capital invested 1.5 billion Swedish Kronor ($161.3 million) in the bumper and dashboard maker through its fifth fund. This reflects the cost of the 2005 purchase from Dutch peer Gilde Investment Management, which had owned what became Plastal since 2001; its contribution to Plastal’s €350 million euro ($439.5 million) purchase of German car parts maker Dynamit Nobel Kunststoff; and an equity infusion of 100 million kronor in January.

Despite Nordic Capital's investment into the company, Plastal filed for bankruptcy recently. The auto parts company explained the bankruptcy filing thus, TThe Plastal group has been severely impacted by the unprecedented downturn in the automotive industry. A sharp decline in volumes during the fourth quarter 2008 has been followed by a further 40% drop in the first two months of 2009 [against the same period the year before]."

Deal Journal explains that companies with heavy amount of debt are more likely to be hit by economic downturns, like the drop in demand that crippled Plastal. And while secondaries buyouts tend to add a level of debt to companies, private equity firms thought management teams would be especially able to handle the debt and increase cash flows.

Secondary buyouts were seen private-equity firms and their investors as more stable and better able to handle debt loads than so-called primary buyouts, because the management teams were used to running the business to maximize cash flow to service the debt. Such skills are increasingly valuable as cash has become king. Still, almost any business with leverage is more vulnerable than most these days and this particularly affects secondary, or tertiary, buyouts.

While Nordic Capital's troubles aren't a conclusive prediction of what is to come for the private equity secondaries market, it is a sign that even secondaries buyouts are vulnerable to market volatility.

For the full article follow this link.

Tags: Private equity trends, private equity industry, private equity nordic capital, private equity nordic capital plastal, plastal group, nordic capital, private equity secondaries, secondaries market

Link to This Resource: Nordic Capital

http://privateequityblogger.com/2009/03/nordic-capital-nordic-capitals-auto.html

Carried Interest Taxation of Private Equity Funds

Carried Interest Taxes

Carried Interest Taxation of Private Equity

In case you missed it last week Obama's new tax plan for 2010 calls for taxation of carried interest as ordinary income more than doubling what many will pay on taxes from such gains. Here is an excerpt from a related article:

Executives at buyout, venture-capital and hedge-fund firms will pay an estimated $24 billion more in taxes over nine years if President Barack Obama gets his way.

Obama’s 2010 budget proposal, released today, proposes raising taxes on the managers by treating carried interest, the portion of profits they take from successful investments, as ordinary income instead of capital gains. That change would boost the tax rate, starting in 2011, to 39.6 percent for most executives from the 15 percent they now pay.

The proposal applies to partnerships that receive a portion of the profits they make for their clients. It will likely reignite a debate begun in 2007 amid the biggest buyout boom in history, when firms including Blackstone Group LP and Och-Ziff Capital Management Group raised their profiles through public stock listings. While the House of Representatives approved the tax change that year, the measure wasn’t taken up by the Senate.

“Obama and his team are up for a fight here,” said George Teixeira, a managing director with accounting firm RSM McGladrey in New York. “They’re missing key components of what these industries do.” source

Tags: Private Equity Fund Taxation, Carried Interest Taxes, Carried Interest Tax, Carried Interest Taxation, Private Equity Taxes, Do private equity firms pay taxes

Link to This Resource: Carried Interest Taxation of Private Equity Funds

http://privateequityblogger.com/2009/03/carried-interest-taxation-of-private.html

Blackstone Group LP

Blackstone Shows 2008 Losses and Executive Pay Cuts

The Blackstone Group has proved vulnerable to the economic downturn, announcing a $1.16 billion loss last year with an alarming $415.2 million lost in the fourth quarter of 2008. This stands in stark contrast to the firm's performance in the recent private equity boom where Blackstone was a giant in the industry posting a $1.62 profit in 2007.

The buyout firm's decision to go public in the summer of 2007 reveals a steady slide in the company's value (see Yahoo finance image). The private equity firm began offering its stock at the height of the buyout boom, from its IPO of $31 Blackstone's stock has declined ever since to just below $5 today. Significantly, Blackstone Group LP's stock fell at more than two times the rate of the market last year.

Blackstone Group LP (BX) stock has steadily dropped, click here to see the full history of the stock.

Pay Cuts for Blackstone Executives in 2008

The co-founder and chairman of the Blackstone Group LP, Stephen Schwarzman, suffered a steep pay cut last year. Mr. Schwarzman received an impressive $180.1 million in 2007 coupled with the $684 million he received when Blackstone went public. In 2008, however, he agreed to a 99% decrease to a $350,000 salary. Blackstone's President Tony James also received a pay cut-- to a lesser extent. Last year, he collected $15.7 million in salary and bonus, down 73% from the previous year.

While Blackstone has suffered heavy losses recently, on a more optimistic note Blackstone is still pulling in steady income from management and advisory fees and maintains more than $750 in available cash:

While the value of its investments tumbled during the quarter, the company was still able to generate $381.4 million in management and advisory fees. Blackstone Group generated $447.5 million in management and advisory fees during the final quarter in 2007.

Despite the mounting losses, the company says its liquidity is strong enough to handle the downturn. Blackstone said it has $767.6 million in available cash as of Jan. 31 after paying off the entire $250 million balance on its revolving credit facility.

For the full report for Blackstone Group LP (BX) in 2008, visit this link.

Additional Source

Tags: Blackstone Group losses, blackstone group lp, BX stock, Blackstone Group (BX), Blackstone private equity, blackstone group stephen schwarzman, blackstone salary

Link to This Resource: Blackstone Group LP

http://privateequityblogger.com/2009/03/blackstone-group-lp.html

Family Office Directory | Directory of Family Office Contacts

Family Office Directory

Directory of Family Office Contacts

Looking for a directory of family office contacts?

Please complete the form below and a professional from the FamilyOfficesGroup.com will be in touch shortly.





Articles Related to Family Office Directory

1. Investing Book
2. Family Office Services
3. Family Office Marketing
5. Philanthropic Giving

Permanent Link: Family Office Directory
Tags: Family Office Directory,Family Office Directories,Family Offices Directory, Directory of Family Offices, Single Family office Directory, Multi-family office directory, directories of family offices

Link to This Resource: Family Office Directory | Directory of Family Office Contacts

http://privateequityblogger.com/2009/03/family-office-directory-directory-of.html