Private Equity as an Asset Class by Guy Fraser-Sampson

Private Equity as an Asset Class by Guy Fraser-Sampson
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Private Equity as an Asset Class

by Guy Fraser-Sampson


Adobe E-Book

June 2007

Guy Fraser-Sampson draws upon twenty years' private equity experience to provide a practical guide to mastering the intricacies of this highly specialist asset class. Aimed equally at investors, professionals and business school students, it starts with such fundamental questions as "what is private equity?" and progresses to detailed analysis of venture and buyout returns. It also unveils a totally new concept which looks set to revolutionise thinking in the industry: Total Return investing.

Often unfairly reviled, and frequently misunderstood, private equity differs from all other asset classes in various important respects, not least in the nature and timing of its returns, which require a whole new approach for those reared on more traditional investments such as bonds and shares. This book shows how a good grasp of the basic structure of private equity vehicles and returns (including the dreaded J-curve) can lead to full understanding of the techniques needed to measure and analyse performance.

Key points include:

A glossary of private equity terms

Venture funds and transactions

Buyout funds and transactions Understanding private equity returns

Analysis of historic returns

How to plan a fund investment programme

How to conduct effective due diligence

Total Return investing


GUY FRASER-SAMPSON has twenty years¡¯ experience of the private equity industry, most notably having set up and run for several years the European operations of Horsley Bridge. As a partner in the firm, and Managing Director of Horsley Bridge International, he had a perhaps unique opportunity to interact simultaneously with private equity managers in both Europe and the US, including famous ¡°golden circle¡± venture firms based predominantly in California. He previously lived and worked in the Middle East as Investment Controller with the Abu Dhabi Investment Authority (¡°ADIA¡±). He has extensive experience of the evaluation of private equity managers, including having personally designed and developed a computer model for the evaluation of buyout performance, but is equally recognised as an authority on venture capital. In addition to his work with fund managers (¡°GPs¡±), he has also been involved in direct, secondary and mezzanine transactions over the years, as well as planning and monitoring private equity programmes from the investor (¡°LP¡±) perspective.

Guy is a well-known figure on the conference circuit both as a speaker and, increasingly, as a provider of keynote addresses. He has written for private equity publications for many years, and is perhaps best known for his regular monthly column in Real Deals. In addition to various professional qualifications, he has an LLB with honours from King¡¯s College London and an MBA majoring in finance from Warwick Business School.

In recent years, Guy has also become acknowledged as an expert on pension fund investment and asset allocation generally, and he has written for all of Europe¡¯s English language pension publications. His first book, Multi Asset Class Investment Strategy, published as part of the Wiley Finance series last year to what Global Pensions described as ¡°rave reviews from the UK pension industry¡± has been hailed as a major contribution to modern portfolio theory. It went into the Amazon ¡°Hot 100¡± six weeks after its launch, and has been featured in newspapers and financial periodicals around the world.


Introduction. Acknowledgements.

1 What is Private Equity?

Fund investing versus direct investing.


Primary versus secondary fund investing.

A broad delineation: buyout and venture.

Capital: allocated, committed, drawn down and invested.

How do private equity funds work?






2 Private Equity Returns ¨C The Basics.

Understanding the J-curve and compound returns.

Upper quartile figures.

Median returns.

Average returns.

Pooled returns.


Distributed over Paid In (DPI).

Paid In to Committed Capital (PICC).

Residual Value to Paid In (RVPI).

Total Value to Paid In (TVPI).



Time-weighted returns.


3 Buyout.

Types of buyout transactions.





Take private.


Other ¡°buyout¡± activity.

Established businesses.





Barriers to entry.


4 How to Analyse Buyouts.




Earnings growth.


Multiple increase in an imperfect market.

Multiple increase in a perfect market.




Modelling and analysing buyout funds.


5 Buyout Returns.

US versus European buyout.

Buyout skill bases.

Imperfect markets.

Earnings multiples.

Earnings growth.


Fund size.

What can we expect from buyout returns in future?

Recent fundraising levels.

Some conclusions and predictions.


6 Venture Capital.

What is venture capital?

Backing new applications, not new technology.

Classification by sector.



Life Science.

Classification by stage.


The US model.

Seed stage focus.

Home run mentality.

¡°Value add¡±.

The US model comes to Europe.

Why European venture capital firms have avoided the seed stage.

Classification by stage, continued.

Early stage investing.

Mid- and late stage investing.


7 How to Analyse Venture.

The fundamentals.

Money multiples.


Cost and value.

IRRs and multiples.

Going In Equity (GI%).

Percentage of the holding within the fund.

The impact of home runs.


8 Venture Returns.

US out-performance versus Europe.

Money multiples drive IRRs.

Home runs and the golden circle.

Market conditions.

European venture ¨C is it as bad as it seems?

Returns and fund size.

Venture returns by stage.

What of the future?


9 Due Diligence.

Buyout funds.

Venture funds.


Cross-fund investing.

Buyout companies.

Venture companies.

Fund of Funds.

Monitoring private equity funds.


10 Planning your Investment Programme.

Cashflow planning.

Allocated, committed and invested capital.

Diversification by time.

Proper commitment levels.

Diversification by sector and geography.

Total Return.

How to deal with uninvested capital.



Private equity proxies 219.

Towards a new world of private equity programmes.