Film Funding Sources

Indian Private Equity Firms Look to Hollywood

I am frequently contacted by individuals and companies looking for private equity funding for their films or film companies. American private equity firms are less excited by the possibility of funding films (high amount of risk, and often a little payoff) but Indian private equity firms are becoming more interested in Hollywood.

Financing in Hollywood has been a challenge since the global recession started about 2 years back. American private equity firms, banks and hedge funds, who once played a significant role in financing, now don’t have the appetite to provide the much needed funding.

However, Hollywood has discovered a new friend in Indian private equity firms. These firms from India are backed by high-net-worth individuals and corporates looking to add the entertainment sector to their portfolio of investments. The array of investments vary from films to syndicated TV shows to pre-contractual live entertainment for casinos in Las Vegas.

The Indian firms are bullish on Hollywood and expecting a return of about 30-50% but at the same time are employing a cautious approach in this newly discovered investment area, by investing only up to 20-50% on an independent project. For now this sounds like a win-win situation for both parties and sets a good example for the global investment community.

Please contact me if you would like to obtain a database of 100+ film investors.

Film Funding Sources

Tags: private equity film funding, funding films, private equity investments film, how to find film funding, film funding sources, private equity film funding, private equity films

Link to This Resource: Film Funding Sources

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Private Equity Long Term Commitments

Private Equity Problem: Long Term Capital Commitments

I talked recently about the problems facing private equity fundraising. One of those that I mentioned is the long-term commitment required by private equity funds as compared to stocks, mutual funds or hedge funds. Now that funds are struggling to make returns for investors it's harder to convince anyone on a multiple year capital commitment. The following Bloomberg video talks more about this point. If you are reading this via RSS or email, please click this link to watch the video.

Tags: Private Equity Long Term Commitments investments, capital commitments, multiple year investments, long term investing, long term private equity investments

Link to This Resource: Private Equity Long Term Commitments

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Private Equity Funds Raised 2010

Private Equity Fundraising 2010

Private Equity Fundraising Dismal in 2010, Overhang Remains

The number of funds closed is on pace with 2009, according to the latest data from PitchBook. That's not great news, but definitely not a surprise. 46 funds closed during the first half of 2010, which is significantly less than the 70 funds closed during the same period last year. But there has been an upward trend of an 85% increase in the number of funds closed since 3Q 2009. If you are reading this through e-mail or RSS follow this link to see the images below.

Capital Raised Still Low

That the number of funds closed has been on the upswing is significant but less so when you look at the amount of capital raised during these quarters. Private equity firms raised just $43 billion in the first and second quarter of this year. That's equal to 3Q and 4Q 2009 but far from the $97 billion raised in the first half of 2010.

It's hard to make a purely economy argument for these numbers like that fears of a double-dip recession are driving investors away. Or that investors are turning to more traditional investments (the stock market does not look any more inviting, and hedge funds are able to raise money). A dragging economy and unstable markets combine for poor conditions for raising funds for long-term investments. Hedge funds enjoy the luxury of being able to promise good returns quickly (and since 2009, for the most part they've made good on that guarantee). It might just be that investors are looking for a way to make money quickly, which would explain why so many institutional investors are pulling money from the industry.

Institutional Investors Run From Private Equity

According to Bloomberg, pensions, endowments, and mutual funds cut new commitments to private equity funds by more than 50%. The article asserts that the problem is that buyout firms have grown to bloated and managers can no longer make the same returns for investors that they used to.

Era of Mini Funds?

While that may be bad news for the private equity giants, that could provide an opening for smaller and mid-market private equity firms to make deals and reach new investors once investor confidence returns. As the next graph shows, the end of the era of "mega" funds has come as fewer mega funds are being raised in 2010 in favor of smaller "mini" funds.

Private Equity Overhang

Private equity firms still have a massive store of dry powder. PitchBook finds a $418 billion overhang in 2010, increasing more than $211 billion since 2007. All that dry powder has a deadline and firms are very aware of that which could stimulate some big (possibly ill-advised) private equity deals in the coming months.

Source

Tags: private equity data, private equity fundraising, private equity research, private equity, private equity funds, private equity funds closed,

Link to This Resource: Private Equity Funds Raised 2010

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Carried Interest Compensation

How is Carried Interest Allocated in a Private Equity Firm

We've talked a lot in recent months about how private equity compensation will be affected by proposals from Congress to change the taxation of carried interest. This is a big concern, as the carry is a huge part of the private equity compensation structure. So, I thought it would be good to look at how carried interest is allocated in private equity firms. To help get a clear picture of how buyout firms are currently distributing carried interest, I'm relying on data collected in PEP Digest's Carried Interest and Compensation Survey.

Partners Carried Interest

The Carried Interest and Compensation Survey reveals an increasing weighted average allocation toward partners as the fund's size increases. In other words, partners receive a larger share of the carried interest as the fund's AUM increases. The only exception is at the highest AUM category of more than $1 billion (partners managing funds in this category actually take home a smaller percentage of the carry than partners in funds with under $100 million AUM). The average allocation of carried interest for partners is 68.6%.

Top Professionals Carried Interest

As you might expect, given that partners take in a share of the carried interest relative to the size of the fund, the top professionals at private equity firms are given a smaller percentage of the carry as the fund size increases. So, the carried interest compensation for top professionals at private equity firms is an inverse relationship to the size of the buyout fund. The average carried interest allocation for top professionals at private equity firms is 10.5%.

Mid-Level Professionals Carried Interest

With mid-level professionals the allocation is mixed suggesting that the percentage varies by individual firm and how the management is negotiating compensation agreements with its employees. For example, a mid-level professional may be extremely valuable and in line for promotion so the management will allocate a larger percentage of the carry as part of a larger compensation package aimed at retaining the person. While others may be of less value and are given the standard percentage or even less.

According to the survey data, at the smallest funds (under $100MM AUM) middle professionals are given 8% but that number increases and decreases by the AUM category. At a fund with $250MM-$500MM a mid-level professional can expect 9.1% but at a larger fund of $750MM-$1B he or she may take home just 7% of the carry. Logically, funds exceeding $1B give top to middle level employees a larger share of the carried interest because the partners are taking a smaller cut. The average carried interest allocation for mid-level professionals is 8.55%

Entry Professionals

Entry professionals are paid comparably to administrative staff and receive significantly less of the carry than middle level professionals. Still, the overall compensation of entry professionals is very competitive with other financial jobs and the opportunity to advance in a private equity firm usually helps retain employees past the entry level phase. Entry level professionals receive an average carried interest allocation of 0.66%.

Administrative Staff Carried Interest

In funds across the AUM spectrum--from under $100m to more than $1b--administrative staff take home less than 1% of the carried interest but almost always more than half a percent. The average carried interest allocation for mid-level professionals is 0.65%.

Other articles on Private Equity Compensation:
Tips for making more money in a private equity career
Private Equity Compensation After the Recession
2009 Private Equity Compensation
What is Carried Interest

Click here for a video on Private Equity Compensation.

To purchase a copy of the PEP Digest's Carried Interest and Compensation Survey follow this link.

Tags: private equity compensation, private equity firm compensation, private equity allocation, carried interest, percentage of the carried interest, what is carried interest, carried interest compensation, definition, entry level compensation private equity firm, data, partner pay

Link to This Resource: Carried Interest Compensation

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Angel Investor Venture Capital

Differences Between Angel Investors & Venture Capital

Buyout firms focus on the later stages of a business and rarely invest in start-ups because it does not play to the strengths of a private equity firm's management and the risks are significantly greater. But that does not mean young companies do not receive private equity funding, it just comes from venture capital firms and angel investors.

The line between venture capital and angel investors is often blurry. The typical distinctions are in the size of the investment, stage of financing, structure of the fund or investor group and the background of the venture capitalist and that of the angel investor.

Size of Investment

The size of investments range by the investor, but typically an angel investor will invest a significantly smaller amount of capital in a start-up than a venture capitalist would. This is true for a few reasons: investable income, stage of the business, risk and structure of the investor and/or fund.

Many angels are high net worth individuals who had a successful career and are now retired or working less. These angel investors often have less capital that they are willing or able to put into what is often a risky investment. Venture capital firms, on the other hand, collect capital from investors and pool their money into funds so they have more capital on hand for investing in a start-up. Venture capital firms can invest anywhere from $100,000 to millions of dollars in a single start-up while angel investors on average invest around $40,000 but that number can be much higher and much lower.

Stage of the Business

The stage of the business is important, meaning that angel investors tend to invest in start-ups at the very early stages of the company. This involves a great deal of risk which limits the investors' capital commitment. But that is typically not a big impediment to the start-up because in the first year(s) of operation, the business requires less capital from outside investors.

Once the firm has developed and proven it has the management or the idea that could evolve into a much larger, more profitable business, a venture capital firm may step in. Though some venture capital firms focus on early stages of the start-up, many invest in companies with a short but proven track record of producing a consistent profit. Venture capitalists therefore focus on the later stages of a start-up and give guidance to the management team during what can be an extremely trying expansion process.

Structure of the Fund

While some angel investors work together in angel investor groups and form venture-like funds, many times angel investors invest independently in a business. This goes to the nature of angel investment, which is that angels often have a personal connection to the business or the owner(s). Angel investors often work or formerly worked in the area of business. So, a former Silicon Valley tech company owner may become an angel investor who looks for new technology firms. The angel investor will use his past experience to advise and assist the start-up so the investment is more of a close partnership than simply a monetary transaction.

Venture capital firms often have a similar background but the venture capital fund's management team are full-time venture capitalists, not part-time investors. The venture fund's goal is to produce successful businesses to generate returns to the fund's limited partners. Unlike angel investors, the venture capital fund derives its income directly from management and performance fees paid by the fund's investors. Of course, the larger performance fee is contingent on the portfolio investment's ability to make a profit so the VC team has a big incentive to grow young companies into bigger, more efficient firms.

Background of the Investor

As I've just written, angel investors and venture capitalists are different in that the former often invests independently almost as a hobby or part-time interest, while venture capital firms invest through funds and sometimes alongside other venture firms in club deals. But the background of angel investors and venture capital investors have some connections. For example, many venture capitalists and angel investors come from a background working in technology. In the last 12+ years, many angel and venture investments have been in tech start-ups (although this is not the only area of investment, health care, biotechnology, financial services, etc.) so the investors reflect the companies invested in.

The Center for Venture Research provides a profile of a typical angel investor that gives some insight into angel investors' backgrounds:
The average private investor is 47 years old with an annual income of $90,000, a net worth of $750,000, is college educated, has been self employed and invests $37,000 per venture. Angels often invest close to home with seven out of ten investments made within 50 miles of the angel investor's home or office. According to CVR "Informal investors are older, have higher incomes, and are better educated than the average citizen, yet they are not often millionaires. They are a diverse group, displaying a wide range of personal characteristics and investment behavior."

I hope this has given a clear distinction between venture capital and angel investors.

Tags: venture capital firms, angel investors, angel investor, angel investment, difference between angel investors and venture capital, VC, angels, financing, small business, find angel investors, what is an angel investor, what is a venture capital fund

Link to This Resource: Angel Investor Venture Capital

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Private Equity Going Public

Investors Challenge Wisdom of Private Equity Going Public

A recent trend in private equity is buyout firms "going public" through initial public offerings. Both Kohlberg Kravis Roberts & Co. (KKR.N) and Blackstone Group (BX) have offered shares to the public, but few private equity firms have seemed intent to follow suit. Concerns include having to answer to shareholders, greater oversight and regulation by the SEC and the possibility of a poor reception to the IPO.

But now private equity firms considering going public have a new worry: investors could leave the fund. That's because private equity investors have expressed concerns that when the private equity firm goes public it will focus too much on generating fees, satisfying common shareholders for quarterly earnings reports and keeping up the firm's stock price.

"It is hard to see (as an investor in the funds) the benefits that private equity business derives from being attached to a public asset management business," said one institutional investor who spoke on condition of anonymity.

That person added that it then becomes a game of building assets under management, meaning the interests of private equity firms and limited partners are less aligned.

Another complaint is that the very premise of private equity is that firms add value to portfolio companies away from the stress of quarterly earnings, said one fund-of-fund investor. Taking the private equity firm itself public goes against the essence of that principle, the person said.

Private equity firms aim to buy undervalued companies, restructure them and sell them later at a hefty profit -- without the constraints of quarterly reporting and pressure from shareholders.

Still, investors are willing to withhold judgment on private equity firms that pursue a public route.

"No institutional (investor) will say, 'if you go public, I'm not re-upping you again,'" that investor said. Source

Tags: private equity going public, private equity public offering, private equity initial public offering, public private equity firms, private equity firms offering stock, list of public private equity firms.

Link to This Resource: Private Equity Going Public

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TPG Chinese Funds

Texas Pacific Group Creating Chinese Currency Funds

I came across this story in the Times this morning. Texas Pacific Group (TPG), one of the largest private equity firms, has struck a deal with the municipal governments of Shanghai and Chongqing to raise $1.5 billion for funds denominated in Chinese currency. This is a huge step into China for Texas Pacific Group, the venture could make it one of the biggest investment firms in the rapidly developing country.

China recently surpassed Japan as the second-largest economy in the world and private equity firms are working to get on the ground floor. The Blackstone Group and Carlyle Group have already launched funds denominated in the renminbi.

The company, which has about $57 billion in assets under management worldwide, said that it was time to move into China’s currency, the renminbi, and that it was drawn by the prospect of working with the Chinese government.

“Private equity is now a global business,” Jim Coulter, a co-founder of San Francisco-based TPG, said in an interview Monday in Shanghai. “And this is our commitment to China.”

The announcement comes as some of the world’s biggest private equity firms, including the Blackstone Group and the Carlyle Group, have already scrambled to raise huge funds denominated in the renminbi.

Analysts say the moves are a reflection of the growing importance of the Chinese currency, but also a sign that global funds are eager to tap the enormous pools of wealth now forming in the fast-growing Chinese economy. Source

Tags: private equity investments, texas pacific group private equity firm, TPG private equity, TPG management, TPG Chinese Currency Funds, TPG renminbi currency funds

Link to This Resource: TPG Chinese Funds

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Private Equity Career Goals

Setting Goals to Advance Your Private Equity Career

It is a common conception that a way to advance in life--especially in your education or career--is by setting goals. Having a goal to meet like becoming an executive or making a profit in the first year running a start up gives you something to strive for. At the end of the year (typically New Years Day), most of us end up wondering why we still have not achieved our goals. Goals are important, but you need to take concrete steps to reach that goal. It's easy to fall into the trap of simply setting a goal and not doing much to reach it.

Setting a goal for your private equity career is important in establishing where you are now and where you want to be in the future. The following is an example of a step-by-step plan to advance your private equity career. Every person's goals will be different but the process is important in getting what you want.

Step 1: Where are you now?

How can you decide where you want to be if you do not know where you are now? It is important to assess your current situation and figure out if you are satisfied at your current position or if you would like to move up. Some people are lured by the high pay and reputation of private equity but years later once they enter the industry they realize their last job was better. So really look at your current job--whether it is inside or outside of private equity--and decide whether you really want to leave this position or if you are actually satisfied there.

Step 2: Where do you want to go?

Assuming you've decided to enter private equity or advance your existing private equity career, you have to ask yourself: Where do I want to go? I believe that many of the obstacles we face in life are self-created. Advancing your career is a question of whether you want to put in the necessary work. For some, it is easy. For others, the task is arduous and requires a lot of effort for a little payoff. So assess your own motivation and commitment to advancing your career and set a realistic goal based on that. You may want to move into a more senior management position in the firm but you are not willing to get the (sometimes) necessary MBA. Figure out where you want to be and take steps to get there.

Step 3: Develop a Strategy.

Private equity is a highly competitive industry. You will have a tough time making it into private equity without a well-thought-out strategy for reaching your goals. Whether you already have a job in private equity or you are looking for your first, you will need a plan. I have written previously on developing a strategy for advancing your private equity career. Here is a summary:

Become a student of the private equity industry by reading news articles and following blogs like this one; joining a local or online private equity networking association; frequently having conversations with private equity professionals.
Narrow your search to 1-2 positions taking into account what area of private equity you are most passionate about; what fits your unique abilities and qualifications best; salary; location; competitiveness of industry etc.
Find a private equity mentor. Look for someone with experience in the industry and reach out to finance professors, family, friends and past associates.
Develop Your Unique Selling Proposition; discover what makes you more valuable and different from other candidates. Consider special skills, second languages, valuable experience in a related industry, designations or awards etc.
Find a private equity internship if you are having trouble landing a paid position at a private equity firm.
Develop your private equity resume and interview skills.
Improve your education with an MBA or professional designation that give you the background necessary to stand out as a private equity job candidate.
Land the unadvertised private equity job through cold-calling buyout firms; exchanging e-mails with private equity professionals; attending networking events; offering to work for a free trial period.
Update your resume with new qualifications and experiences you've added from the previous the other steps in your plan as well as feedback from your mentor and interviews. Reach out to professionals you have met during your research for potential job opportunities. Check back with firms you have spoken with previously.

This is a loose set of suggestions for advancing your private equity career and should be adjusted based on your chosen career path.

Step 4: Stay with your strategy.

In my experience, the most common reason for not getting a job in private equity is that the person gave up too soon. It can be really tough and even demoralizing to interview with firms and get rejected. But it is a learning process, listen to their reasons for not selecting you and adjust your strategy to improve the areas you are lacking in. You may feel like you are wasting your time but you will absolutely be wasting your time if you give up at the first challenge you face. You may need to take a less desired job in the mean time before you get the one you want, but you should still be working toward your goal during this time.

Step 5: I reached my goal, what now?

Congratulations, you've reached your goal. But now you may be wondering what to do next. If establishing your goals and developing a strategy to achieve them has worked for you, continue to assess your situation and find new goals. I do this regularly to ensure that I am never treading water. It is always helpful to be working toward a goal.

I hope this has been a helpful guide to advancing your career in private equity by setting career goals.

For more private equity career articles, training videos, a career guide, resume coaching and other resources check out the Certified Private Equity Professional program.

Tags: private equity career, private equity career goals, advancing your private equity career, how to get a job in private equity, private equity careers

Link to This Resource: Private Equity Career Goals

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Private Equity Aerospace & Defense

Private Equity Firms Bidding on Aerospace and Defense

Some of the largest companies in America are in the aerospace and defense industries, so it should be little surprise that private equity firms are looking into these sectors. Buyout firms are among the top bidders for recent aerospace and defense firms put up for auction. In some cases, private equity groups are the only potential buyers interested in the firms. These private equity firms include the top players in the industry from Carlyle Group to Blackstone Group.

An auction for McKechnie Aerospace—which makes aerospace parts for both commercial and military customers—has drawn interest from several buyout players. The firms include Carlyle Group, Goldman Sachs' GS Capital Partners LP and the Blackstone Group, according to people familiar with the matter.

Private-equity firm JLL Partners put McKechnie recently up for sale and is seeking at least $1.2 billion for the asset. JLL acquired McKechnie in 2007 from British investment firm Melrose Plc for $855.6 million.

McKechnie, based in California, has facilities in the U.S., the U.K. and Europe. Its major customers include Boeing Co. and European Aeronautic Defence & Space Co.'s Airbus. McKechnie and the buyout firms did not return requests for comment. Source

Carlyle Group is no stranger to the defense and aerospace industry. The private equity giant owns or has a significant stake in several firms.

List of Carlyle Group Aerospace and Defense Holdings (Former and Current)

ARINC Incorporated

Aerospace & Defense ; Mezzanine Finance , U.S. Buyout ; October 2007 ; Current

Aviall Services, Inc.

Aerospace & Defense ; U.S. Buyout ; December 2001 ; Exited

Avio SpA

Aerospace & Defense ; Europe Buyout , U.S. Buyout ; September 2003 ; Exited

Combined Systems, Inc.

Aerospace & Defense ; Mezzanine Finance ; April 2005 ; Current

Composite Structures

Aerospace & Defense ; U.S. Buyout ; July 1997 ; Exited

DHS Technologies, LLC

Aerospace & Defense ; U.S. Growth Capital ; July 2004 ; Current

EG&G Technical Services, Inc.

Aerospace & Defense ; U.S. Buyout ; August 1999 ; Exited

Firth Rixson

Aerospace & Defense , Industrial ; Europe Buyout ; February 2003 ; Exited

Firth Rixson Limited

Aerospace & Defense ; Europe Buyout , U.S. Buyout , Mezzanine Finance ; December 2007 ; Exited

Gardner Group Ltd

Aerospace & Defense , Industrial ; Europe Technology ; October 2008 ; Exited

Howmet International

Aerospace & Defense ; U.S. Buyout ; October 1995 ; Exited

Indigo Systems, Inc.

Aerospace & Defense , Technology & Business Services ; U.S. Growth Capital ; February 2002 ; Exited

Landmark Aviation

Aerospace & Defense ; U.S. Buyout ; August 2004 ; Exited

Lear Siegler Services, Inc.

Aerospace & Defense ; U.S. Buyout ; September 1997 ; Exited

NP Aerospace Limited

Aerospace & Defense , Healthcare , Industrial ; Europe Technology ; November 2005 ; Exited

QinetiQ

Aerospace & Defense ; Europe Buyout ; February 2003 ; Exited

Sequa Corporation

Aerospace & Defense ; U.S. Buyout ; December 2007 ; Current

Sippican, Inc.

Aerospace & Defense ; U.S. Buyout ; April 2002 ; Exited

Standard Aero Holdings, Inc.

Aerospace & Defense ; U.S. Buyout ; August 2004 ; Exited

Stellex Aerostructures, Inc.

Aerospace & Defense ; Global Distressed & Corporate Opportunities ; October 2004 ; Exited

United Defense Industries, Inc.

Aerospace & Defense ; U.S. Buyout ; October 1997 ; Exited

United States Marine Repair, Inc.

Aerospace & Defense ; U.S. Buyout ; November 1997 ; Exited

Vought Aircraft Industries, Inc.

Aerospace & Defense ; U.S. Buyout ; July 2000 ; Current

Vought Aircraft Industries, Inc. (Aerostructures Corp.)

Aerospace & Defense ; U.S. Buyout ; September 1996 ; Current

Wesco Holding, Inc.

Aerospace & Defense ; Mezzanine Finance , U.S. Buyout ; September 2006 ; Current

Tags: list of Carlyle Group Holdings, Carlyle Group defense, Carlyle Group aerospace, Carlyle Group War, Private Equity Funding, Financing, Investments in Aerospace, Investments in Defense, Carlyle Group investments, Portfolio

Link to This Resource: Private Equity Aerospace & Defense

http://privateequityblogger.com/2010/08/private-equity-aerospace-defense.html

Career Assessment

Private Equity Career: Ask for an Independent Assessment

This week, I was preparing for a project and although I felt I had done a good job on it, I asked two other people in the office to give it a second look. Asking for a second opinion is always a good idea; the benefit of having someone else's independent take on your work gives you confidence if the person approves and allows you to fix mistakes you might have missed if he or she does not approve.

Preparing your private equity resume and getting yourself ready for interviews are crucial in starting or advancing your private equity career. Because these tasks are so important, you should ask a respected peer for an assessment--whether it regards your resume, when you're preparing for contract/salary negotiations, or before an interview. I have found that you benefit immensely from a third party. We recommend having at least two other people look over your resume, preferably more.

Benefits of an Independent Assessment

Fact-checking exaggerated claim: If you plan to say on a resume or interview that you "Managed operations for X division" someone at that company may remind you that you did not have this title. You may have completed 90% of the work managing that division but if the private equity firm checks that claim and sees that someone else was manager of that division during the time you claim, your whole resume and credibility will be called into question. This is why it is important to have someone questioning each statement you give in an interview or on a resume.

Reminding you of your qualifications: The resume and the interview are places to brag, which can be difficult for some people who are modest by nature or expect that managers want someone who is modest. While modesty is a great quality, it's hard to get a job unless you accurately and strongly present your worth. I always look at the interview process as an opportunity to give my case why the company should hire me. If you want to present a convincing case, you need to show off all the reasons you are the best person for the job. As I said, some people are uncomfortable with this idea, so a third party can help draw out your qualifications and remind you why you are the best for the position.

Simple typos or grammar issues: I cannot tell you how many applications I have looked through that are riddled with typos and grammar mistakes. Most employers (fairly or unfairly) consider this a reflection of your abilities. These mistakes can reveal a number of things about your character and work ethic such as: inattention to detail, poor education, failure to self-edit, etc. It is hard to blame the employer for this, you give them very few examples of your ability to write and work. So if one of your writing samples (the resume) has flaws, the employer has to draw some conclusions about you. The best way to find these mistakes is to have at least two people look over your resume. The Certified Private Equity Professional program offers free resume reviews to all participants.

No surprises: Employers often try to throw you a curve ball in the interview. She knows that you have rehearsed your answers in anticipation of his questions. So a good interviewer will push you away from your "script" with an atypical question. Practicing your interview with a third party is a great way to learn how to think on your feet and respond confidently. The best practice interviewer is someone who works in private equity or is knowledgeable about the industry so that she can give you realistic and unexpected questions.

Assessing your abilities: A third party can also let you know what positions you should be looking at. This person can give you an independent assessment of you and your qualifications. Again, it is best to get someone with some experience in the industry or knowledge of private equity such as a former employer, associates, or a business/finance professor. For instance, you may have the skills and intelligence to work in a more senior role at a private equity firm but a third party could advise you that you need to improve your education through an MBA to seriously be considered for the position. Conversely, you may not realize that you are qualified to advance to a higher position in the firm. A third party's assessment will help you realize your full potential and how to achieve realistic goals.

Having a third party assess you during your private equity career is a good idea, especially during the resume and interview process. This is one article that is included in the Private Equity Career Guide provided to participants in our Private Equity Training Program

See our Private Equity Career Section for more private equity career articles, videos and resources.

Tags: private equity career advice, private equity career, private equity careers, private equity jobs, jobs in private equity, careers, how to get a job in private equity, private equity interview, private equity resume

Link to This Resource: Career Assessment

http://privateequityblogger.com/2010/08/career-assessment.html

J Curve

J Curve Private Equity

An Introduction to the J Curve & Private Equity

Continuing with my goal of providing free educational articles on private equity, the following is a brief introduction to the J Curve and its application to private equity and venture capital.

The J-Curve shows an investor the compound return over time (IRR) of a private equity fund in order to asses its performance. Any private equity fund will exhibit strongly negative returns in the early years as the money is drawn down either through management fees or capital calls. After investments begin to mature, positive inflows of cash come back into the fund until the amount of outflows precisely matches the amount of inflows, creating an internal rate of return (IRR) of zero.

As the fund continues it’ lifespan, the IRR should move into the arena of positive returns demonstrating long-term investments maturing and producing the desired returns.

The J-Curve is so named because the curve resembles a J, usually with a less sharp curve. It is often compared to the shape of a hockey stick. Here is an example of the J Curve:

This is just a brief introduction to the J Curve, if you want to add more to this article send me an email.

If you would like to learn more about the J Curve and Private Equity portfolio management, I recommend the following two books by the same author: Beyond the J Curve: Managing a Portfolio of Venture Capital and Private Equity Funds, and J Curve Exposure: Managing a Portfolio of Venture Capital and Private Equity Funds. I am considering adding to the list of required reading for next quarter's Certified Private Equity Professional program.

Tags: private equity investments, J Curve, J Curve IRR, J Curve Internal Rate of Returns, J Curve private equity, Managing Private Equity Portfolio, Private equity portfolio management, managing a private equity portfolio, what is the J Curve, J curve calculation, J Curve Definition, IRR J Curve Private Equity

Link to This Resource: J Curve

http://privateequityblogger.com/2010/08/j-curve.html

Valuation Tools

EBITDA is Helpful, But Know the Disadvantages Too

The following is a guest article written by Bryan Sayers at ForexFraud, a online resource
to the investment community that highlights the growing problem of fraud in the investment markets.

In this article, he discusses the advantages and disadvantages of relying on EBITDA for valuation.

Valuation Tools: EBITDA is Helpful, But Know The Disadvantages, Too!

Searching for hidden gems in mountains of financial data is a difficult task at best, but the task is made more manageable when assisted by a financial metric that adds value to data screening techniques. Many have chosen “EBITDA” to be their perfect rule of thumb. EBITDA arrived on the financial scene in the 1980s when leveraged buyouts were center stage. It provided a quick indication of a company’s ability to generate cash flow to pay down the associated debt to come. Analysts began to favor the measure, especially when appraising capital-intensive industries with major depreciation outlays extended out over long time periods. Technology companies now commonly quote the figure in reports if it is to their advantage to do so.

EBITDA champions contend that the accounting measure provides a sense of how much cash a young or fast-growing company can generate to pay all of the “bad stuff” that follows “Earnings Before”, or EB. The “bad stuff” consists of interest, taxes, depreciation and amortization. Many analysts choose to go a step further to calculate the ratio of Enterprise Value to EBITDA as one more useful comparative. Enterprise Value starts with market capitalization and deducts debt and cash. Proponents believe that “EV” represents what the true worth of the company’s business potential would be if it were to be acquired, and when divided by EBITDA, the multiple may supply an excellent tool for uncovering undervalued stocks.

EBITDA is not a measure of true cash flow, but the insights it provides relate cash flow more to valuation than do most other common financial statistics. Simple revenue multiples rarely convey important information on operating margins. Price earning ratios, though more informative, are subject to business cycle swings and various timing issues tied to the bottom line. Nevertheless, screening software can easily discern EBITDA when plowing through financial databases in a much more straightforward manner than do complex technical indicators employed by forex software. Manipulations of basic data are not a necessity.

However, EBITDA has become ensconced in the financial analysts bag of tricks. As private equity firms prospect for undiscovered “nuggets”, it would behoove each analyst to recall the downside risk of using this measure in their various evaluations. Here are a few concerns to be aware of:

Standard-setting bodies have yet to develop or enforce a definition of EBITDA. As a result, companies can create their own or use aggressive accounting policies to distort and erode the reliability of the measure;
Various industries are capital-intensive, but the measure ignores capital expenditures, resulting in evaluations that could be either unrealistic or very misleading. If a company chooses to lease instead of purchase its material assets, then the accounting treatment could vary and distort results;
Since EBITDA is not a true cash flow indicator, it will miss factors pertaining to working capital needs, debt repayments or financing activities;
Lastly, the measure can actually make horribly unprofitable firms seem to have more future potential that can be justified by actual results. Some detractors jokingly state that EBITDA was invented to disguise bad earnings announcements.

Private equity analysts are always in search of a helpful metric to guide their prospecting efforts. EBITDA has evolved as the preferred measurement tool over the past few decades, if frequency of application in valuation terminology warrants that recognition. In any case, analysts should be forewarned that EBITDA would be more useful when evaluating firms in the identical industry, even when they have widely varying tax rates, capitalization structures and depreciation policies.

This article was contributed by Bryan Sayers at ForexFraud, to visit his website follow this link.

Tags: EBITDA, EBITDA pros and cons, benefits of EBITDA, Earnings before Interest taxes depreciation amortization, EBITDA definition, what is EBITDA, calculating EBITDA,

Link to This Resource: Valuation Tools

http://privateequityblogger.com/2010/08/valuation-tools.html

Private Equity Investment Destinations

Private Equity Exploring Emerging Market Destinations

I recently came across this interesting video covering new private equity emerging market destinations. John R. Jonge Poerin, managing partner at Linley Capital, talks about the clear growth in Asia--most easily shown by the GDP increases in many Asian countries--and how private equity firms are looking to invest in emerging markets around the world from Latin America to Asia. To access this video if you are reading this via email or RSS, follow this link.

Tags: private equity emerging markets, private equity investment destinations, private equity investments, private equity destinations, private equity news, private equity funds

Link to This Resource: Private Equity Investment Destinations

http://privateequityblogger.com/2010/08/private-equity-investment-destinations.html

Fund Capital Raising

Guest Article: Use of Personal Contacts in Capital Raising

Richard Wilson is an expert in capital raising and has helped many alternative investment funds raise capital. We often trade capital raising advice and talk about what strategies alternative investment firms are employing to raise funds. He shared a discussion he recently had on a radio show talking about capital raising during which he was asked about whether fund managers need tons of personal contacts to raise capital for their fund and to stay in business? Here is his answer:

No. While some private equity funds do have a capital raising edge by having hundreds of high net worth, seeding, or institutional investor friends already in place most funds have only a small group of personal relationships when they first launch their business. Regardless of the size of their personal network, managers must have marketing processes and potential investor cultivation processes in place to continually turn over new potential investors, introduce them to your private equity fund, and move them through a 7+ touch relationship development pipeline towards a due diligence conference call, in-person meeting, or direct investment.

It is critical to have these capital raising processes in place, documented, and refined based on what you learn about how other private equity funds are raising capital and working with new investors. If you are about to start a private equity fund pay attention to these capital raising processes upfront. If you run a medium or large sized fund you can diversify your investor pipeline and improve the effectiveness of your communications by creating a flow chart or documented process that your marketing and sales team will follow.

Raising capital for your private equity start up fund is difficult without a strong database of private equity investors. Even established private equity firms can benefit by expanding their list of private equity investor contacts. To learn more about our Private Equity Investor Database with thousands of private equity-focused contacts, follow this link.

To read more about private equity fund raising see four capital raising resources.
Using Marketing Strategies to Raise Capital

Tags: private equity investors, raising capital, private equity fundraising, capital raising guide, private equity capital raising strategies, private equity fund start up capital raising, capital raising process

Link to This Resource: Fund Capital Raising

http://privateequityblogger.com/2010/08/fund-capital-raising.html

Private Equity Real Estate Jobs by City

List of Private Equity Real Estate Jobs by City

I receive a lot of e-mails asking how to work for a private equity real estate fund. Even though this represents just a fraction of all private equity activity it seems that many professionals are either attracted to the type of large payoffs that real estate funds sometimes offer or they are trying to enter the private equity industry through an alternative route (i.e. not investment banking). Often these professionals will highlight their real estate experience to make up for perceived or real weaknesses in their private equity resume.

One way to best position yourself for a job at a private equity real estate firm is to understand where are the firms specializing in this sector. This is a useful way to expand your search from simply applying to single private equity real estate firms that you hear of or contact and to narrow your search from only looking in cities that have high amounts of private equity firms but may not have many private equity real estate firms. The following is a list of cities with private equity real estate firms and their estimated total employment.

City Estimated Total Employment

New York                2,000
London                   1,100
Chicago                     480
San Francisco                                         410
Paris                                                         400
Dallas                         400
Boston                       380
Los Angeles                                           360
Singapore                                               200
Hong Kong                                               170

The results are not surprising and largely reflective of the private equity industry with New York City and London vying for the top position. As you can see from the list of private equity real estate firms employing by city, large US cities are among the top. But two Asian locations, Singapore and Hong Kong have significant numbers of private equity real estate firms so if you have experience working in Asia--especially in real estate--or you speak Chinese (especially Mandarin) or Malay, then you should consider marketing yourself to firms in these places. Similarly, if you speak French or have worked in France you should consider private equity real estate firms in the country.

Narrowing your search geographically is just one of many ways to best position yourself to work in private equity. You should also consider the Certified Private Equity Professional designation, a training program that prepares participants with a strong background and knowledge of private equity. Participants are provided with resume coaching, video and other multi-media resources, a career guide and other valuable tools. To learn more about this private equity training program follow this link.

Source: Preqin

Tags: private equity real estate, private equity real estate firms, private equity real estate jobs, private equity real estate jobs list, list of private equity real estate firms, private equity real estate firms

Link to This Resource: Private Equity Real Estate Jobs by City

http://privateequityblogger.com/2010/08/private-equity-real-estate-jobs-by-city.html

KKR Secondary Offering

KKR Withdraws $500 Million Secondary Offering

If you're tired of hearing about KKR's initial public offering and now secondary public offering, good, you've been paying attention. Kravis Kohlberg Roberts and Co. were considering an initial public offering for some time and took concrete steps toward that goal only to withdraw their SEC filing this week. KKR was looking to raise $500 million through the secondary offering of shares to the public but due to a poor financial market, the private equity giant has decided not to go through with the offering.

The news came as the private equity firm released its first earnings report since it went public this year. KKR (KFN) reported earnings of 15 cents per share with a quarterly divident of 8 cents. This amounted to an annualized yield of just over 3%.

For more information see our tracker profile for KKR.
For contact details on this firm and more than 1,000 other private equity firm visit this website.

Tags: kkr, kkr private equity, KFN, KKR Financial Holdings, KKR profile, KKR biography, KKR contact details, contact KKR, Kohlberg Kravis Robers and Company, KKR Co, KKR public, public private equity firms

Link to This Resource: KKR Secondary Offering

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Working Capital Ratio

Working Capital | What is the Working Capital Ratio?

As part of the goal of this blog, to educate readers on all aspects of private equity, we are expanding our educational definitions of common private equity terms. The working capital ratio is both an indicator of a company's short-term health as well as its efficiency.

A company can either have positive working capital or negative working capital. If the company has positive working capital it means that the firm's current assets are sufficient to cover its current liabilities. Logically, if a company's current assets cannot cover its current liabilities then it has negative working capital.

Working Capital Ratio Formula

The calculation for the working capital ratio is the following: working capital equals current assets subtracted from current liabilities.

Working Capital = Current Company Assets - Current Company Liabilities

What does Working Capital show?

Working capital gives us a good short-term picture of the company's financial health as well as how efficiently the company is being managed. If a company's current assets are less than its current liabilities then it will likely encounter difficulties paying off creditors which could result in bankruptcy. Additionally, a negative working capital may indicate to investors that the company does not have a reliable or efficient method of collecting money from customers--which could leave it vulnerable if it is unable to pay its creditors because the customers are slow to pay or default on payments.

I hope this has been a helpful summary of the working capital ratio. This has only been a brief introduction, I will expand on this term as well as others in the future.

Tags: net working capital, working capital ratio, what is working capital, working capital calculation, private equity working capital, calculate working capital, calculating working capital ratio, negative working capital, positive working capital, definition working capital ratio

Link to This Resource: Working Capital Ratio

http://privateequityblogger.com/2010/08/working-capital-ratio.html

EBITDA

Earnings Before Interest Taxes Depreciation Amortization

It occurred to me today that I have not provided a definition for a very common term in private equity. Earnings Before Interest, Taxes, Depreciation and Amortization--or EBITDA--is a measurement used in valuation for the cash flow of a company.

Private equity firms often look to this measurement as a quick picture of a company without the complicating elements--interest, taxes, depreciation and amortization. This presents us with a straight forward idea of the money a company is bringing in.

The calculation for EBITDA or Earnings Before Interest, Taxes, Depreciation and Amortization is as follows:

EBITDA = Revenue - Expenses (excluding Interest, Taxes, Depreciation, Amortization)

This is a common indicator used in mergers and acquisitions as well as when private equity firms are considering a buyout of a company. EBITDA is often times used to decide how much a company is worth, how much leverage a deal requires and other areas of a buyout or merger.

To read an article on the disadvantages of relying on EBITDA follow this link.

Tags: EBITDA, Earnings Before Interest Taxes Depreciation Amortization, EBITDA private equity, Private Equity Valuation, valuation EBITDA, EBITDA calculation, What is EBITDA, How to calculate EBITDA

Link to This Resource: EBITDA

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Private Equity Real Estate Employment

Private Equity Real Estate Employment by Country

Private equity real estate employment has been on the rise as the private equity real estate industry has expanded significantly in recent years. From 1999 to 2009, private equity real estate funds have increased by more than 550%. Similar to the distribution of all private equity firms, the leading countries by private equity real estate firms are the United States and the United Kingdom.

I am frequently contacted by professionals looking to work for a private equity real estate firm. To help narrow your search, I am providing a list showing private equity real estate employment by country.

Private Equity Real Estate Employment by Country

United States - 7,100
United Kingdom - 1,300
France - 400
India - 200
Singapore - 200
Australia -180
Hong Kong - 170
Germany - 160
Canada - 140
United Arab Emirates - 120
Other - 1,130

The estimate of the total employment for Private Equity Real Estate Employment by Country is 11,100

Source: Preqin Report Employment & Compensation in the Private Equity Real Estate Industry 2009

Learn more about our private equity training program

Directory of 1,000+ Private Equity Firms

Tags: private equity jobs, private equity employment, private equity real estate jobs, private equity real estate employments, jobs in private equity real estate firms

Link to This Resource: Private Equity Real Estate Employment

http://privateequityblogger.com/2010/08/private-equity-real-estate-employment.html

Emerging Markets Investments

Private Equity Increasing Investments in Emerging Markets

Here is a quick update on private equity emerging markets. Private equity firms are increasing investments in emerging markets. The uptick in activity in emerging markets is largely thanks to investments in Latin America and China. Fundraising for private equity funds in Africa has also risen recently.

A $1.1 billion investment in a Chinese life insurer and the buyout of an Indonesian retailer are among the deals that are part of an overall rise in private-equity investment in emerging markets so far this year, and the pace of transactions is on track to surpass last year's total, according to an industry group.

Private-equity investments are again gaining traction among the very rich, says Terry Diamond, chairman of Talon Asset Management.
In the first half of 2010, emerging-markets private-equity investment totaled $13 billion, up from $8 billion at the same time last year, according to new figures from the Emerging Markets Private Equity Association, a Washington-based nonprofit.

The total value of private-equity investments made in the first half of 2010 was $4.5 billion more than that invested through the same period last year. There were 402 deals done in the first two quarters, an increase of 44% from the same period last year, and quarterly transaction volume was tracking slightly ahead of the pace before the financial crisis. Source

Tags: private equity emerging markets, private equity investments in emerging markets, private equity emerging markets firms

Link to This Resource: Emerging Markets Investments

http://privateequityblogger.com/2010/08/emerging-markets-investments.html

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