Private Equity Internships

 Tips on Applying for an Internship at a Private Equity Firm

About a year ago, I published a post here asking for interns to help with the private equity blog, the Private Equity Investment Group networking association, writing the free private equity e-book, and similar projects.  Many people, mainly MBA students and recent graduates, responded with strong interest in landing a private equity internship.

Most respondents were seeking an internship with a private equity or venture capital firm and I noticed that almost every e-mailed answer was different, varying from a two sentence note with a rough resume attached to a very lengthy memo with a cover letter and resume.  As the majority of respondents were mistakenly under the impression they were applying for an internship with a private equity firm, this gives me a good opportunity to provide some advice on applying for an internship or paid position at a buyout shop.

I have reviewed a lot of internship applications and here are some common problems or things to avoid:

• Check grammar and spelling:  Here is a common mistake that I'm always surprised to see because it is so easy to fix.  If you really want a position, why not spend an extra fifteen minutes reviewing the application to fix obvious grammar and spelling errors?  I know that managers often interpret this as either the applicant has a poor attention to detail (a critical and valued skill in private equity) or the applicant is simply lazy and does not want the job as much as someone who put in the extra effort to have a well-edited application.  In such a competitive job market, this kind of mistake could mean the difference between you getting the job and the other person who went the extra mile.
• Don't Mass E-mail:  I can tell when I receive a mass e-mail and when it is an e-mail for a specific job opening.  Private equity employers can tell the difference too.  If it doesn't sound forced, it may be good to include a comment that shows you have been following the firm and know something about it.  If the firm invests primarily in a specific industry you can say something like, "I believe that my previous work experience in the energy sector would be very valuable to Example Buyout Firm because your firm has a long history of investing in this industry.
  
• Be Professional Not Funny: I believe that humor rarely works in the introduction to a potential boss.  It's not that the manager or recruiter lacks a sense of humor, it's just too risky that a little joke with not translate well over e-mail or you will simply look unprofessional.  I have received e-mails about the internship that were intended to be humorous but came off weird or annoying, such as one memorable e-mail that began, “READ THIS MOST IMPORTANT EMAIL FROM YOUR FAVORITE PERSON.”  Having never met the person, it was misleading and overall off-putting.  This is not to say that you should be uptight when interviewing or communicating with a potential employer, but always maintain a professional attitude.  Once you get the job and get to know your coworkers better you can relax more; there is a time and place for humor.  
• Missing Attachment or Information:  This is a common problem that I see, applicants will e-mail an incomplete e-mail missing vital information or documents.  For example, I have received an e-mail with no name and I have been sent an application where the person referred to a resume that was not included.  These are simple understandable mistakes (I often forget attachments) but in such an important e-mail it's worth reviewing to make sure everything is included and then having a friend or colleague double-check.
• Not Too Long, Not Too Short:  Private equity partners and recruiters are extremely busy so they prefer a concise and direct e-mail.  When applying for a job, I would suggest a cover letter explaining what position you are applying for, why you would like the job, and what qualifications you have.  Then a easy-to-read resume attachment.  Too often applicants will write excessively long e-mails or a one sentence note.  

Here are some suggestions to have a great e-mail or letter application for an internship and full-time position.

• Double check:  As I have noted, it is worth the extra effort to review and revise your writing.  A well-written and carefully checked communication will often put you above other candidates.
• Get Feedback: If you are applying for an internship or job in private equity, it's a safe bet you have a few great resources you've overlooked.  Most applicants for a full-time position have already worked in finance or a related field and hopefully you have kept a good relationship with your former boss and colleagues.  If you left on good terms why not run your resume and cover letter past your old coworkers to see if they would add or omit anything.  If you're applying for an internship you can ask a former employer, family member, friend, or professor to review your application.   
• Highlight Your Strengths:  Often I see applicants note their weaknesses rather than strengths.  An e-mail will typically go something like, "I know that I do not have the same academic qualifications as other candidates but..."  While it's important to be aware of the weaknesses in your resume, leave it there.  The employer will see these shortfalls, if he cares, and there is no reason to remind him of what you lack.  Usually the example sentence will continue "...but I do have the following qualities..."  I would remove the first part of the sentence and focus on your strengths exclusively.
• Be Persistent:  I always have to add a reminder that success in business and life comes with persistence. If you don't land your dream job move on to other opportunities or review your efforts and make improvements.  Private equity is a tough market, you have to be tough too.

This post is not in any way guaranteeing that you will land a private equity internship or job but a well-written e-mail or letter is the first step in getting to the interview, then it's all you.  I hope this was helpful. 

Also see five career mistakes to avoid and how to write a private equity resume


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Thanksgiving

Thanks from PrivateEquityBlogger.com

It's a holiday so I just wanted to say a quick thank you to everyone who has helped and supported me in this blog.  PrivateEquityBlogger.com started as a small venture and has grown to one of the most popular private equity resources with over 1,000 page views each day and 900 newsletter subscribers.  I'd like to thank all of you readers for your support and interest over the last couple years, it's been really great to meet and talk with you on the phone and even in person.

I have high hopes of growth for the industry and this website.  The economic crisis was severe and I know it effected many of my readers and I hope the worst is over.  I'm excited for the new businesses and new funds that will emerge in the next few months.  I, too, am expanding my businesses with a private equity database, new website for the 30,000+ members of Private Equity Investment Group and a private equity certification program in the near future.  All of these prospects would not have been possible without the readers of PrivateEquityBlogger.com, so thank you and have a great Thanksgiving!


--Theo O'Brien



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Canada Private Equity Investors

Private Equity Groups in Canada Worried Over Economy

Private equity firms are worried that Canada's economy may be headed for a double dip.  Read more about Canada's private equity industry in this article.  Despite Canada being one of the most resistant to the economic downturn of the developed countries, investors' confidence seems to be low.  Buyout activity in Canada is only around $2 billion in the first nine months of 2009, that's a big decline from the $8.5 billion last year. 

 "We're having a hard time understanding where the economy is going. It is still a market in our view where you need to be cautious and careful," said Michael Lay, a managing partner at ONCAP, the fund established by Onex Corp (OCX.TO) to invest in North American small-cap companies.

Some private equity partners say concern the economy will dip again is leading them to shelve plans for time-consuming, costly initial public offerings for portfolio companies until the outlook points to a sustained recovery.

Data this week showed that retail sales rose twice as much as expected in September as consumers ramped up spending on a wide range of goods, suggesting the economy grew at a healthy clip in the month.

But a week ago Bank of Canada Governor Mark Carney said the economy performed worse than expected in the third quarter and, while recovering, risks further setbacks due to the sharp rise of the Canadian dollar.  Source

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Private Equity Resume Tip

Tip on Writing a Resume for Private Equity

I have previously written on how to build a resume here and now I'd like to expand on that.  If you'd like to read more on writing a private equity resume see this article.  Here is an interesting interview with Richard Wilson, a third party marketer and hedge fund consultant.  He gives his insight on landing a job at a hedge fund or private equity firm.  Here is an excerpt and link:

Getting your resume to the top of the pile at a hedge fund can be tricky -- many are small elite firms that see a slew of top candidates. But taking the time to perfect your resume can yield great rewards. For one, there are fewer gatekeepers at hedge funds. Hedge fund firms are sometimes only a handful of employees, so your resume can potentially grab the attention of a hiring manager right away, says Richard Wilson, a hedge fund trainer and consultant who is the president of the Hedge Fund Group, a professional trade association.

Below are a few tips to help you craft that perfect hedge fund resume. Also, check out an example of the perfect hedge fund resume, before and after.

Customization

With so many different hedge funds employing various investing strategies (and focusing on specific areas), it's important to find out exactly how you can apply your skills. For example, if you're applying to a biotech-focused hedge fund, highlight your science degree or specific experience in the field. If one hedge fund uses shorting make sure to point out your own shorting experience in a resume. Don't use broad terms in hopes of not alienating potential employers, says Barry Emen, founder of MJE Advisors, a recruiting firm in Florham Park, N.J., who works with hedge funds. "Go after the niche you're in -- you can't just decide that you'll do anything for anyone," says Emen.

Highlight Designations

Even if you don't have a top-tier MBA, designations like the Chartered Financial Analyst or Certified Hedge Fund Professional can help your resume standout. We are working on starting a certification for the private equity industry that should help distinguish candidates from others.  The certifications will help show that you're motivated to work in private equity and that you are eager to keep learning and can do so easily. source


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Private Equity Drug Companies

Drug Companies Are Likely Targets for Private Equity

Several large drug companies are drawing attention from private equity firms.  Endo Pharmaceuticals Holdings Inc., King Pharmaceuticals Inc., and LifePoint Hospitals Inc. are seen as viable buyout targets.  Each drug company has a market capitalization of $1 billion to $3 billion, have low debt, high cash inflows, and shares are reasonably priced--if not undervalued.  Private equity firms are increasingly looking to the healthcare industry as a profitable area for buyout deals.  Here is more on the three drug companies from Bloomberg:

[Buyout firms] see opportunity in health care, where companies are trimming costs and spinning off units in response to the economy, even as the industry stands to gain from U.S. legislation that may expand care to more than 30 million Americans, said Karen Bechtel of the Carlyle Group, the world’s second-largest equity firm.


“The combination of health-care reform and the recession has forced companies to be more careful about running their businesses,” said Bechtel, who heads the Washington firm’s health-care unit, in a telephone interview. “That’s driving activity, and it will accelerate.”

King, based in Bristol, Tennessee, rose 34 cents, or 2.9 percent, to $12.14 at 9:46 a.m. in New York Stock Exchange composite trading. LifePoint, of Brentwood, Tennessee, climbed 82 cents, or 2.8 percent, to $30.21 in Nasdaq Stock Market composite trading and Endo, based in Chadds Ford, Pennsylvania, gained 50 cents, or 2.3 percent, to $22.70.

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Private Equity Turkey

Turkey's Private Equity Industry Expected to Recover

Coincidentally, this story is very appropriate given Thursday's holiday.  Turkey's private equity industry is recovering, according to industry experts speaking at a recent conference.  The small but expanding buyout sector struggled in the financial crisis but deals are expected to rebound in 2010 with the help of foreign financing.  Driving areas of investment are predicted to be in the healthcare and energy industries.  A study last year estimated that Turkey had a total of 95 private equity investments and 23 private equity exits, and despite the economic decline, leaders of Turkey's buyout industry are hoping that good management and fundamentals will push a recovery.

"Whoever you ask they are all looking at health care deals, renewable energy, but not so much at retail, which I think is a mistake," Seymur Tari, managing director of Turkven Private Equity group, told Reuters at the sidelines of the PEI conference.

"Most funds here are pretty agnostic though, it is more about good management teams and industries rather than sectors."



"The industry is so small in Turkey, the total loans of Turkish banks are around $450 billion and the amount of money they lend to private equity is less than $1 billion in any given year," Tari said, adding that because of the limited scale of the market, banks had not encountered problems with acquisition finance loans and so would not be shy in lending.

"Private consumption is around 77 percent of Turkish GDP... your portfolio should reflect the importance of private consumption, and we are very much a believer in the Turkish consumer."  Source

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Blackstone China

Blackstone and Others Opening Buyout Funds in China

I found a good article today covering what we've been seeing a lot of lately, private equity in China.  Last week I wrote about the Carlyle Group investing more and more in the region and now the Blackstone Group has opened a new $732 million fund in China, denominated entirely in Chinese currency. 

The Times notes that first, this is a sign of a strong confidence in the Chinese currency (formally called renminbi) and second, Blackstone's move represents a broader shift of private equity firms raising capital from rich Chinese individuals and persons.  I believe investment in China will only increase as its economy continues to expand and its financial markets develop, and private equity groups will be at the forefront of this movement toward China.

Chinese private equity funds are emerging in big cities as China promulgates new regulations aimed at creating a homegrown private equity industry, one that Beijing hopes will strengthen the country’s capital markets and fuel private sector growth in an economy overly dependent on government investment.

Industry experts say that to compete with China’s growing funds, global firms like Blackstone, the Carlyle Group and even the buyout firm Kohlberg Kravis Roberts are scrambling to form funds denominated in renminbi. Analysts say it has suddenly become the currency of choice for private equity firms operating in China.

“Now, more and more deals are being done with local funds,” said Wang Chaoyong, chairman of China Equity, a large private equity firm based in Beijing. “Even internationally invested companies are switching to local currency.”  Source

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Tags:  investment in China, private equity china, private equity firms in China, china private equity, private equity Shanghai, buyouts china, Chinese

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Private Equity Hedge Fund Secondaries

Private Equity Looks to Buy Illiquid Hedge Fund Stakes

Private equity firms are among the potential investors in the hedge fund secondaries market.  Some hedge fund investors are still worried about liquidity after being stuck with illiquid hedge fund investments during the financial crisis.  Now that the hedge fund industry and markets are recovering, buyout firms and other buyers are looking to purchase stakes in hedge funds.  The hedge fund secondaries market has expanded to several billion dollars a year and there are still a lot of investors interested in selling.

Some niche firms are buying these stakes at discounted prices, willing to wait months or years until a fund winds up, hoping they've picked up a bargain when they are finally paid out. Campbell said the firm regularly spoke to around six such funds, as well as other buyers.

The market has developed after the turmoil of 2008, when many funds were unable to meet requests to return client money and instead limited or suspended redemptions. Worst affected were funds which had loaded up on illiquid assets such as debt in struggling sectors or certain emerging markets assets.
The price buyers are willing to pay has risen this year, Campbell said, reflecting improvement in the industry as a whole as investors return and performance has picked up.

A large overhang of stock remains, but new buyers such as niche private equity firms are entering the market and, after doing their homework, are prepared to hold the acquired stakes until a fund winds up, Campbell said.  Source

Read about the differences between private equity and hedge funds here.


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California Pension Fund

CALPERS Cuts Funding to Buyouts 62% This Year

The California Public Employees’ Retirement System's reduction of private equity funding is a worrying signal from institutional investors.  CALPERS is the biggest American pension fund and its drastic reduction of capital allocation to private equity funds shows a strong distrust of the buyout industry.  In the first seven months of the year CALPERS has reduced cash investment with private equity funds by 62% to $2.23 billion.

Private equity funds are at a disadvantage to traditional investments and hedge funds, which are able to generate positive returns quickly.  Hedge funds have rebounded in 2009, taking advantage of a shaky market to have seven consecutive months of positive returns and six straight months of inflows.  Private equity funds, on the other hand, invest primarily long term and new deals may still take years to generate visible gains to investors.  For those deals that were made before or during the financial crisis, buyout firms have had to inject large amounts of capital to simply keep those portfolio companies afloat.  Investors will make their money when the portfolio firm has an initial public offering or is sold to another buyer but the IPO market is still struggling and there are few buyers interested in paying a reasonable price for a company in this economic climate.

So, investors have valid reasons to be nervous about investing in private equity funds.  Add the layer of management and performance fees and it is little wonder that CALPERS has reduced its payment to the industry.

Although the situation looks pretty grim it is important to realize that this shows a distrust of the industry and alternative assets as a whole, not a complete rejection of private equity.  CALPERS still allocated 2.23 billion to private equity firms through July which probably means that the investor is waiting to see if the industry can recover before committing more capital.  It is also part of a institutional investor push to change the limited-general partnership agreement to include more favorable terms for investors. The problem is that private equity firms need capital to start new funds to execute new deals and overcome the debt-laden investments bringing down many buyout firms' portfolios. 

The California Public Employees’ Retirement System wrote checks for $2.23 billion to the firms through July, compared with $5.93 billion during the same period last year, according to documents prepared for Calpers’s investment committee meetings. Joseph Dear, Calpers’s chief investment officer, said he may extend his review of the plan’s “relationship” with Leon Black’s Apollo to other private-equity managers.

After contributing to the record $1.2 trillion raised by buyout funds this decade, many pensions, endowments and wealthy families suffered their worst losses last year. Now fund managers face mounting pressure from those investors, known as limited partners, to deploy cash more judiciously and rein in fees that transformed founders of the largest funds, Blackstone Group LP, KKR & Co. LP and Carlyle Group, into billionaires.

“You’re in a period where performance is poor and, particularly for the big guys, it’s coming home to roost,” said Steven Kaplan, [of] the University of Chicago Booth School of Business. “When performance is poor and money is scarce, the limited partners have the power.”  Source

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Tags: CALPERS, California Public Employees Retirement System, buyout, private equity CALPERS, california private equity investment, CALPERS buyout investment, CALPERS Private Equity Returns

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The Next IPOs

The Next IPOs

Is Toys R Us The Next Initial Public Offering

After Dollar General and Rue21 Inc.'s successful initial public offerings, faith in the public market may be revitalized enough to bring inspire other private equity firms.  Apax Partners took teen clothing retailer, Rue21 Inc., public Friday.  KKR also took their portfolio company, Dollar General, public on Friday opening with a slightly smaller gain in stock price than Rue21 (RUE.O).

Toys "R" Us Inc. will likely go public as the IPO market is finally reviving, according to retail consultant Howard Davidowitz.  You can hear his take on the IPO market and the retail industry in the following short video.



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Simmons Chapter 11

THL Partners' Simmons Files Chapter 11 Bankruptcy

Simmons Bedding Co. has filed for chapter 11 today, beginning plans to restructure in Delaware Bankruptcy Court.  The Atlanta-based company is the second-largest mattress manufacturer and has been owned by Thomas H. Lee Partners since 2003.  A proposed deal, awaiting approval from the bankruptcy court, would cut Simmons' debt from $1 billion to $450 million.

If the bankruptcy filing is approved, then the process should take about 60 days, according to Michael Henson, spokesman for Simmons through an outside firm.
"All that's left is confirmation of the court," he said. "If the court approves the restructuring plan, the company should be able to close the transaction shortly hereafter."

The plan includes a $760 million deal in which private equity firm Ares Management and Teachers' Private Capital, the private investment arm of the Ontario Teachers' Pension Plan, would contribute equity. Teachers' also owns National Bedding Co., the largest bedding maker and part of the Serta brand.Boston-based private equity firm Thomas H. Lee has owned Simmons since 2003 and has been struggling under restructuring charges. The deal would allow Simmons to slash its debt to $450 million from $1 billion.  Source

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Private Equity Cow Paths

Fund Marketing | Is Your Fund Walking a 'Cow Path?'

The following is a short guest post from Richard Wilson at HedgeFundBlogger.com
 
I recently heard Eben Pagan speak in LA at a marketing conference on how business is typically conducted.  I was reminded of that talk while I was in Boston last week for our Hedge Fund Premium networking event (which was great).

The streets in Boston were actually old cow paths that the city decided to just pave over to create the roads of the city.  The result, is a very complicated maze of one way streets which really only make sense to the most veteran cab drivers.  This is not the cows' fault, they simply walked in the direction of least resistance.  The point here is that nobody stepped back and looked at where the cows had wandered and asked if there was a better way to get the project done...they simply followed where cows had walked in the past.

Pagan's point in telling this story was that in every business, every form of marketing and even within the fund business there are cow paths everywhere.  Are you and your business wandering around on cow paths of what others have done in the past, or are you building a super highway straight towards your goal?

Areas to examine for private equity fund managers could include hiring, capital raising, employee management, performance reporting, transparency, governance, and investor relations.  Our team often steps back and looks at competitors, other industries, and steps to the work we are trying to complete to see if there is a more direct or efficient way of completing it.  Hope this story helps.



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Venture Capital Confidence

Reading into the Venture Capitalist 'Confidence Index'

As Sarah Lacy of Techcrunch.com recently wrote, venture capitalists often talk about downturns being the right time to invest in startups.  Yet the data does not reflect this belief.  An interesting study was conducted by University of San Francisco associate professor of entrepreneurship Mark Cannice.  He asked local venture capitalists how confident they were in the high growth industry in the next 6-18 months.  This "confidence index" shows an upturn and downturn by quarter.  For example, in the last quarter of 2007, when the VC industry was booming, the confidence index took a dive.  Similarly, when the markets were still struggling in the start of 2009, VC confidence was soaring.  So, it appears venture capitalists really can predict economic cycles.  (You can find the USF Confidence Index data here).

Now, venture capitalists' confidence is the same in this quarter as it was in the second quarter of 2009.  This could mean that VC's are hesitant to decide whether the current recovery is real or just the calm before another storm.  The IPO market seems to be reviving but until venture capitalists see solid evidence of this recovery, they won't get their hopes too high.

Here's more from Sarah Lacy on this confidence index and the VC industry:

So what does that mean? In short, they're still confident, but waiting for that confidence to be backed up by reality.

Here's the good: VCs still feel there's a lot of good new companies out there, and they know that to make returns ten years from now, they have to keep the dollars flowing now, according to the survey. What's more: There are more private tech companies with more than $50 million in annual revenues that haven't yet exited than ever before. It's a combo of some dot com survivors whose markets finally caught up with their original hype and some surging newer companies. Both are either having a hard time going public in stock market that ignores mid-cap companies or are run by CEOs that just don't want to go public in a short-term, Sarbanes Oxley world.

Here?s the bad: VCs essentially have two 'customers' and both are cautious buyers of what VCs are selling right now. One are the LPs, who despite the recovering public markets are way over-allocated in illiquid venture capital funds and, whether they believe in the asset class long term or not, they're being forced to sell stakes or at a minimum curtail investing in the next cycle of funds.  Read more here.

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TPG Japan Airlines

TPG May Buy Minority Stake in Japan Airlines

TPG may purchase a minority stake in Japan Airlines in order to prevent the company from moving to Delta Airlines.  The deal is overseen by American Airlines, which is hoping to expand to Japan Airlines' network in Asia.  Japan Airlines is swamped with $15 billion in debt, large pension deficit and unpopular money-losing routes.  The Japanese government has said it would bailout JAL for the fourth time since 2001. 

Even as it struggles to avoid bankruptcy, JAL is being wooed separately by American Airlines and Delta Air Lines, which are keen to gain access to JAL's network in Asia and a stronger foothold in Japan. JAL is Asia's largest carrier by revenues.

AMR's Thomas Horton said TPG, which helped fund Continental Airlines emergence from bankruptcy in 1993 and backed a failed takeover attempt for Australia's Qantas Airways (QAN.AX) in 2007, has agreed to potentially invest in JAL as part of any deal with American Airlines.

"As appropriate and if it were welcomed by Japan Airlines and the government of Japan, TPG could also be part of a comprehensive recovery plan," Horton told reporters in Tokyo.

"They have been active in the airline space over the years."  Source

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Private Equity Outlook 2010

Venture Capital & Private Equity Outlook 2010 Video

I came across a great video today from the Venture Capital and Private Equity Outlook 2010.  It's difficult to guess what the future holds for private equity.  At the onset of the recession, few were expecting such a severe downturn; in 2008, it seems some predictions were overly pessimistic.  Now that the worst of the recession appears to have passed, it is a bit easier to predict how the buyout industry will fare in 2010 and beyond.  A diverse panel from VC's to buyout managers addresses this question including: Rich Brenner, President & CEO, The Brenner Group, Inc.; Rajeev Batra, Director, Mayfield Fund; Rich Garnick, Founder &CEO, The ConJoin Group; Rich Lawson, Co-founder & Managing Director, Huntsman Gay Global Capital. 








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Tags: private equity video, private equity outlook 2010, venture capital and private equity outlook 2010, private equity outlook, videos, buyout outlook, future

Link to This Resource: Private Equity Outlook 2010

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China and Private Equity Investment

Carlyle Group Sees China as Best Private Equity Destination

I recall a discussion I had with a private equity professional a few months ago.  He was preparing to move to China in anticipation of the economic development and the opportunities for private equity investment.  It appears his decision was a good one. 

This has been a big year for China and private equity despite the dismal economic climate.  China's national pension fund has invested in four private equity firms this year and the fund's manager has promised, "The social security fund won't stop investing in PE in the future."  And buyout funds are returning the favor, led by Carlyle Group, taking both minority and majority stakes in Chinese companies.

David Rubenstein, co-founder of Carlyle Group, has selected China as the most desirable location for private equity investment.  Rubenstein said at a recent conference, "I regard China as the single most attractive place in the world for us to invest at the moment."  His buyout firm is a testament to this belief, last year Carlyle agreed to invest $87 million in a Shanghai-based chemical company, as well as committing $50 million to a private education firm in China.  It has bought a minority stake in a Chinese infant formula producer.  And with Carlyle raising $1.04 billion for a fourth Asian development fund, more deals in China are expected.  So, it is little surprise that Rubenstein is so optimistic about the outlook for private equity investment in China.  Other buyout firms are active in China too; KKR, Sequoia Capital and other funds have invested over $1 billion combined in China's dairy industry.

The U.S.-based private-equity fund, which has more than $86.1 billion under management, is planning to expand its presence in China by setting up a yuan-denominated fund.

"For any of the large private-equity firms in the West to be a real player in China you probably should have a RMB fund," he said, using another name for China's currency.
Until now, Carlyle's investments in China--as with most foreign private-equity firms--have been from funds raised in dollars outside of China. Yuan-denominated funds will allow foreign firms to avoid a lot of regulatory red tape while accessing China's massive domestic savings.

Rubenstein said that over the last two years Carlyle has invested $2.5 billion in China in 47 deals.
Speaking on the eve of U.S. President Barack Obama's first visit to China, he said that the U.S.-China relationship is the "best it's ever been."
"Right now the Obama administration has excellent relations with the Chinese government." Source

Also see Blackstone Group in China.



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LBO Debt

The Worrying Debt Facing 10 Large LBO's

Buyout deals financed between 2005-2007 are "drowning in debt" and struggling to refinance in this economic climate.  Moody's Investors Service has tracked the performance and finances of companies owned by the top 14 buyouts firms as well as non-mega buyouts in its report, "$640 Billion & 640 Days Later: How Companies Sponsored by Big Private Equity Have Performed During the U.S. Recession" and found that six are considered distressed and four have defaulted. 

I've discussed this mounting pile of debt previously when debating the so-called "comeback" of private equity, and I still believe it is an obstacle facing the industry that must be addressed before the bigger buyout firms can execute new deals consistently at a pre-recession level.  Buyout firms may have been correct to continue to use borrowed capital to keep their failing portfolio companies afloat in the crisis, but Moody's may be correct in suggesting that several large investments are due to default anyway.  I have a suspicion that the Moody's estimate may be exaggerated to some extent but there is no denying the debt issue.

It appears these deals were financed with the hopes that the recession would be shorter or that the buyout management would be able to turnaround the company enough to scrape by in the crisis.  However, most of these firms are consistently under-performing and hope for returning to profitability is dwindling.  An important note is that very few of the companies held by private equity firms received capital infusions to reduce their debt, those buyouts injecting capital were likely trying to avoid covenant violations. 

The report found that deals by Cerberus Capital Management LP and Apollo Management Lp have performed the worst among their peers. Four of Cerberus' six buyouts are in distress or in default, and about two-thirds of Apollo's companies are in equally dire straits. However, these firms have focused more closely on distressed targets than their peers covered by Moody's, including Kohlberg Kravis Roberts & Co., Blackstone Group LP (NYSE:BX), Welsh, Carson, Anderson & Stowe and Madison Dearborn Partners. Additionally, the revelation about problems in Apollo's and Cerberus' portfolios was already well known thanks to the high-profile bankruptcies of Cerberus' Chrysler LLC and Apollo's Linens 'n Things Inc.

"These mega-deals continue to under-perform," said John Rogers, Moody's senior vice president. "As with Harrah's, the announced debt exchange at the former TXU is only the first step in addressing its over-leveraged capital structure."

Only three of the biggest 10 LBOs remain above the distress level, according to Moody's:

• HCA Inc., bought by a private equity consortium for $35.3 billion;
  
• First Data Corp., another "Large Club" LBO, acquired for $29 billion; and
  
• Hertz Global Holdings Inc. (NYSE:HTZ), bought out by a private equity consortium led by Carlyle Group for $15 billion in 2005.   Source
  

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Tags: LBO debt, leveraged buyouts, leverage, buyout, private equity deals, debt, restructuring, refinancing

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Email Marketing Best Practices

Capital Raising With Email Marketing Best Practices

I am syndicating the following article from Richard Wilson of Hedge Fund Blogger.  I have worked with Richard for years and he is extremely knowledgeable in capital raising for hedge funds.  The recent poll on this blog has led me to enlist Richard's help in providing more articles on fund marketing.   The best practices he employs are very applicable to private equity, given that you are targeting the same investors for alternative funds. 

Marketing has evolved to include e-mail marketing in many funds' capital-raising strategies.  Similarly, businesses and start-ups searching for capital have also successfully implemented email marketing.  While a large amount of marketing remains more personal, either face-to-face meetings or by phone, email has become an accepted and even preferred form of contact.  Therefore it is essential to have experience in copy writing. 

I worked as a risk consultant and capital raiser for 7 years before starting my own firm.  During the last few years of those positions I was responsible for raising most assets on an email and phone-based system and I have slowly picked up some tips for capital raising since then.  I started my own firm 2 years ago and since then I have sent and received over 800,000 emails.  Our business is so email-based that we have been forced to study best practices within this space to improve our efficiency at connecting with potential clients.

Most CEO's don't invest their time or put much importance on managing email communications.  One of my favorite quotes by Brian Tracy is that if you don't what others won't you will get what other's don't.  If you invest your time in increasing your effectiveness at email marketing you will have an edge over others.

Tonight I'm speaking on email marketing for capital raising.  I will be sharing best practices in reaching out to potential and current investors through writing copy and using email marketing best practices.  While 99% of those reading this blog will not be able to attend the event we will be posting a recorded video of this discussion to Hedge Fund Premium and sharing some of the tips below within this post:

Email Marketing Best Practices

1. Understanding Importance of Copy:  What is the difference between a $1 and a $100 bill? The message on the paper.  The message on your email, the message on your investor letters, the message on everything you write makes the difference between it being worth $1,000 and $100,000.  I think that sales copy writing is consistently under-valued and overlooked by business and investment professionals of all types.  One of my best tips for email marketing would be to simply not overlook the power of a carefully constructed email marketing campaign or well written piece of communication.  
2. Use the professionals first name within the subject of emails to them - Marketing Sherpa 2008 study showed this increased open rates by 30%, using both the first and last name increased open rates by 22%. 
3. Focus on the Headline:  The most important part of any piece of copy is the headline.  Often times over email the headline of the email is a slight variation of the subject line, perhaps the subject line minus the person's first name.  Focus on fitting a benefit and then the chain reaction of that benefit into the headline if possible.  "Double Your Capital Raising Resources to Cultivate More Investors Each Day"  We have found that putting the benefit after your firm name is most effective.  Just be careful not to promise benefits that are odds with your compliance department.  
4. Focus on the Start:  Hook the reader within the first paragraph.  Make sure the first paragraph is no longer than 2 sentences and provides a very concise summary as to what will be discussed within the following message. If possible try to fit in both what the benefits will be of hearing this information and what the dangers are of not paying attention to this information.  Psychology studies consistently show that professionals are almost twice as likely to listen more closely and take action on information related to a fear or some negative result rather than some potential benefit or positive outcome.  This does not mean you should scare clients into working with you, but you should hook readers using framing which mentions the positive as well as negative consequences of not taking action.  The recent use of email browsers which let you preview the first 50-150 words of email messages make the start of your email even more important.
5. Use Professional Email Distribution Services: Use a professional email distribution services such as Aweber, this costs $10/month or less to start using.  By using this service your emails will be delivered more often, your campaigns will be more organized and the service will more than pay for itself through saving you and your time valuable time.  Make sure that whatever service you use, you consider opt-in confirmation and enable an unsubscription link at the bottom of each email you send. 
6. Automate Relationship Development: Use automated follow up emails.  Write a series of 20 educational emails covering industry white papers, industry findings, commonly misunderstood terms, and information about your fund.  Once you have qualified an investor, ask for their permission to opt into an email list which will automatically email these professionals once a month for the next 20 months. If you deliver value within each of these 20 emails your further inquiries will be well received.  We currently use Aweber to send out automated emails to over 50,000 professionals each month. 
7. Use Stories:  Whenever you are writing an email or sales letter try to incorporate a story of some type. How was this product created? How did your career and experience evolve and bring yourself to this point where you have gained this knowledge?  If you scroll up to the beginning of this post you will see that I have a short story about my own experience with email marketing which led me to write this article.
8. Picture & Signature:  End your communication with a picture of the professional on your team which is held out as the communicator or leader.  Make sure that a real scanned signature and professional picture are included to help readers connect with your team.  

I hope these tips help you improve your email marketing campaigns!

To learn more on fund marketing read Private Equity Fund Marketing

Also read how to create a Private Equity Pitch Book

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Tags:  private equity, private equity management, fund marketing, best practices, email marketing, fundraising, capital raising by email, fund raising by email

Link to This Resource: Email Marketing Best Practices

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Private Equity Insider Trading

Looking at Recent Private Equity Insider Trading Cases

Last week, the SEC filed charges of insider trading against seven individuals including Ronald Yee, former CFO at ValueAct Capital and Chen Tang, former employee at Friedman Fleischer & Lowe (a San Fransisco buyout firm).

Tang and Yee, who are brothers-in-law, along with the others in the case, allegedly made nearly $2 million in profit from trading Tempur-Pedic shares, and $6 million from trading shares of Acxiom, based on information they obtained by virtue of their employment at Friedman Fleischer and ValueAct, respectively, according to the SEC. Lawyers for the two said they will fight the charges. Neither of the firms where the two worked are implicated in the case - indeed, the SEC appears to have bent over backwards examining their ethics and compliance policies. Friedman Fleischer sent a firm-wide email advising of a trading blackout in Tempur-Pedic as the firm considered that deal, while the SEC said ValueAct has ethics and insider trading policies that Yee had certified he understood several times.  Source

While insider trading is not common in the buyout world there is a history of some private equity individuals profiting off inside information.  The Journal has provided a brief history of insider trading in private equity which includes Hilton Hotels Corp, Albertson’s Inc., TXU Corp., Petco Animal Supplies Inc and others.  See the article here.


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Private Equity Companies Debt

Debt-Heavy Portfolio Companies Taken Over By Lenders

Private equity firms are struggling to protect their portfolio companies from bankruptcy.  As the recession continues, several private equity-backed companies have been taken over by lenders causing the private equity investors to lose their stakes.

Recent examples include CPI Group (Europe's biggest book printer), Linpac (maker of the plastic packaging for McDonald's), and Navimo (producer of yachting accessories).  The private equity buyers--such as CVC Capital Partners and Montagu--have lost control of these companies in the recession and there are fears that other debt-laden companies may fail as well. 

What do the maker of McDonald’s fast food cartons, Europe’s biggest book printer, and a French yachting accessories group have in common?
They are all companies bought by UK-based private equity groups before the credit crunch, which have run into trouble because of excessive debts and been taken over by their lenders in the past few weeks.

The next wave could include Hit Entertainment, the Apax Partners-owned media group behind Bob the Builder and Thomas the Tank Engine; Gala Coral, the betting and bingo group owned by Cinven, Candover and Permira; and Foxtons, the London estate agents owned by BC Partners.
The growing list of credit crunch victims illustrates how hard private equity groups are having to fight to protect investments.

The latest example is Linpac, the Birmingham-based maker of plastic packaging for McDonald’s and Tesco, which has been taken over by lenders led by Lloyds Banking Group in a restructuring that halves its debts to about £320m ($526m).  Source

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Tags: Private equity, private equity firms, private equity companies, company lenders, buyout financing, restructuring, private equity assets, buyouts

Link to This Resource: Private Equity Companies Debt

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