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Per Stromberg - One of the best experts on this subject based on the ideXlab platform.
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Private Equity and Industry Performance
Management Science, 2017Co-Authors: Shai Bernstein, Morten Sorensen, Josh Lerner, Per StrombergAbstract:The growth of the Private Equity industry has spurred concerns about its impact on the economy. This analysis looks across nations and industries to assess the impact of Private Equity on industry performance. We find that industries where Private Equity funds invest grow more quickly in terms of total production and employment and appear less exposed to aggregate shocks. Our robustness tests provide some evidence that is consistent with our effects being driven by our preferred channel. This paper was accepted by Amit Seru, finance.
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Private Equity and Industry Performance
National Bureau of Economic Research, 2010Co-Authors: Shai Bernstein, Morten Sorensen, Josh Lerner, Per StrombergAbstract:The growth of the Private Equity industry has spurred concerns about its potential impact on the economy more generally. This analysis looks across nations and industries to assess the impact of Private Equity on industry performance. Industries where PE funds have invested in the past five years have grown more quickly in terms of productivity and employment. There are few significant differences between industries with limited and high Private Equity activity. It is hard to find support for claims that economic activity in industries with Private Equity backing is more exposed to aggregate shocks. The results using lagged Private Equity investments suggest that the results are not driven by reverse causality. These patterns are not driven solely by common law nations such as the United Kingdom and United States, but also hold in Continental Europe.
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Private Equity and Industry Performance
SSRN Electronic Journal, 2010Co-Authors: Shai Bernstein, Morten Sorensen, Josh Lerner, Per StrombergAbstract:The growth of the Private Equity industry has spurred concerns about its potential impact on the economy more generally. This analysis looks across nations and industries to assess the impact of Private Equity on industry performance. Industries where Private Equity funds have invested in the past five years have grown more quickly in terms of productivity and employment. There are few significant differences between industries with limited and high Private Equity activity. It is hard to find support for claims that economic activity in industries with Private Equity backing is more exposed to aggregate shocks. Robustness tests suggest that the results are not driven by reverse causality. These patterns are not driven solely by common law nations such as the United Kingdom and United States, but also hold in Continental Europe.
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Leveraged Buyouts and Private Equity
Journal of Economic Perspectives, 2009Co-Authors: Steven N. Kaplan, Per StrombergAbstract:We describe and present time series evidence on the leveraged buyout / Private Equity industry, both firms and transactions. We discuss the existing empirical evidence on the economics of the firms and transactions. We consider similarities and differences between the recent Private Equity wave and the wave of the 1980s. Finally, we speculate on what the evidence implies for the future of Private Equity.
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Leveraged Buyouts and Private Equity
Journal of Economic Perspectives, 2009Co-Authors: Steven N. Kaplan, Per StrombergAbstract:In a leveraged buyout, a company is acquired by a specialized investment firm using a relatively small portion of Equity and a relatively large portion of outside debt financing. The leveraged buyout investment firms today refer to themselves (and are generally referred to) as Private Equity firms. We describe and present time series evidence on the Private Equity industry, considering both firms and transactions. We discuss the existing empirical evidence on the economics of the firms and transactions. We consider similarities and differences between the recent Private Equity wave and the wave of the 1980s. Finally, we speculate on what the evidence implies for the future of Private Equity.
Mike Wright - One of the best experts on this subject based on the ideXlab platform.
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Private Equity Demystified - The Private Equity Market
Private Equity Demystified, 2020Co-Authors: John Gilligan, Mike WrightAbstract:This chapter defines Private Equity, describes the origins of the Private Equity market, and examines the data on the size and growth of the Private Equity industry. Private Equity is risk capital provided outside the public markets. The businesses invested in by Private Equity range from early stage ventures, usually termed venture capital investments, through businesses requiring growth or development capital to the purchase of an established business in a management buyout or buy-in. Much, but not all, of the investing done in the Private Equity market is by Private Equity funds. The objective of a Private Equity fund is to invest Equity or risk capital in a portfolio of Private companies which are identified and researched by the Private Equity fund managers. The chapter then considers what Private Equity fund managers do. It also provides a brief history of Private Equity before assessing how big the Private Equity market is.
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Private Equity Demystified - The Private Equity Fund
Private Equity Demystified, 2020Co-Authors: John Gilligan, Mike WrightAbstract:This chapter discusses Private Equity funds. It looks at the typical fund structures, who invests in Private Equity, and compares and contrasts alternative investment options. A Private Equity fund is a form of ‘investment club’ in which the principal investors are institutional investors, such as pension funds, investment funds, endowment funds, insurance companies, banks, sovereign wealth funds, family offices/high net worth individuals and funds of funds, as well as the Private Equity fund managers themselves. Private Equity funds have a limited life, meaning that there is a pre-agreed date on which they will stop making new investments and subsequently be wound up. Typically, a fund invests in new projects for six years and is wound up in ten years. There is a standard extension period of two years in most fund agreements, hence they are generally known as ‘ten plus two’ limited life funds. In the past few years, some longer-term funds have started to be raised by some fund managers. These are typically targeting growth capital. The chapter then differentiates limited partners (external investors) from the general partner (the manager). It also studies the economics of Private Equity, examines the details of a representative Limited Partners Agreement as well as taxation, and describes the secondary fund market.
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Private Equity Demystified
2020Co-Authors: John Gilligan, Mike WrightAbstract:This book deals with risk capital provided for established firms outside the stock market, Private Equity. It has grown rapidly over the last three decades, yet it is largely poorly understood. Although Private Equity has often been criticised in the public mind as being short-termist and having adverse consequence for employment, in reality this is far from the case. Dispelling some of the biggest myths and misconceptions about Private Equity, the book explains in detail what Private Equity involves and provides a review of the systematic evidence of what the impact of Private Equity has been. Written in a highly accessible style, it takes the reader through what Private Equity means, the different actors involved, and issues concerning sourcing, checking out, valuing, and structuring deals. The book contains summary tables of the academic research carried out over the past three decades across the Private Equity landscape, including the returns to investors, economic performance, impact on R&D and employees, and the longevity and life-cycle of Private Equity backed deal.
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Private Equity Demystified - Doing A Deal: The Process of a Private Equity Transaction
Private Equity Demystified, 2020Co-Authors: John Gilligan, Mike WrightAbstract:This chapter details the process of a Private Equity transaction. There are two sides to every corporate transaction: those acting with or for the purchaser and those acting with or for the owners of the target company, the shareholders. Private Equity funds outsource many functions. The chapter looks at the advisory relationships at three stages of an asset’s ownership cycle: acquisition of the target company, during the ownership life, and finally at disposal. It considers both what the advisers are doing and the incentives that this creates in the broader Private Equity market, particularly focusing on reciprocity. The chapter also examines the auction process that lies at the heart of many Private Equity deals. The key contracts in a Private Equity deal include the Articles of Association, the Investment Agreement, and the Sale and Purchase Agreement. The chapter then describes the Heads of Terms, which is a non-binding agreement that sets out the key terms of the deal prior to starting to draft the formal contracts.
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Private Equity Demystified - The Private Equity Critics and the Research
Private Equity Demystified, 2020Co-Authors: John Gilligan, Mike WrightAbstract:This chapter explores the major criticisms levelled at the Private Equity sector. It clarifies some misrepresentations and myths in the light of experience over the evolution of the market and the weight of systematic evidence summarized in this book. It is important to distinguish between analysis at the fund level and at the level of the underlying individual investments. The majority of studies in the finance literature are at the fund level and discuss Private Equity as an investment strategy. Analysis at the investment level is often done by case study, which always risks creating general conclusions from specific examples. The chapter then looks at areas which are under-researched. These areas include performance and returns; deal structures; the Private Equity process; new and secondary markets; and the political environment.
Douglas J. Cumming - One of the best experts on this subject based on the ideXlab platform.
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Private Equity Benchmarks and Portfolio Optimization
Journal of Banking and Finance, 2013Co-Authors: Douglas J. Cumming, Lars Helge Haß, Denis SchweizerAbstract:Portfolio optimization using Private Equity is typically based on one of three indices: listed Private Equity, transaction-based Private Equity, or appraisal value-based Private Equity indices. However, we show that none of these indices is fully suitable for portfolio optimization. We introduce here a new benchmark index for venture capital and buyouts, which is updated monthly, adjusted for autocorrelation (de-smoothing), and available contemporaneously. We illustrate how our benchmark enables superior quantitative portfolio optimization.
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The Oxford Handbook of Private Equity - The Oxford Handbook of Private Equity
2012Co-Authors: Douglas J. CummingAbstract:The term Private Equity typically includes investments in venture capital or growth investment, as well as late stage, mezzanine, turnaround (distressed) and buyout investments. It typically refers to the asset class of Equity securities in companies that are not publicly traded on a stock exchange. However, Private Equity funds do in fact make investments in publicly held companies. Chapters in this book cover such public investments. The Handbook provides a comprehensive picture of the issues surrounding the structure, governance, and performance of Private Equity. It comprises contributions from 41 authors based in 14 different countries. The book is organized into eight parts, the first of which introduces the issues, explains the organization of the handbook and briefly summarizes the contributions made by the authors in each of the chapters. Part II covers the topics pertaining to the structure of Private Equity funds. Part III deals with the performance and governance of leveraged buyouts. Part IV analyzes club deals in Private Equity, otherwise referred to as syndicated investments with multiple investors per investees. Part V provides analyses of the real effects of Private Equity. Part VI considers the financial effects of Private Equity. Part VII provides analyzes of listed Private Equity. Finally, Part VIII provides international perspectives on Private Equity. Available in OSO: http://www.oxfordhandbooks.com/oso/public/content/oho_economics/9780195391589/toc.html
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Private Equity: Fund Types, Risks and Returns, and Regulation - Introduction to Private Equity
Private Equity, 2011Co-Authors: Douglas J. CummingAbstract:Private Equity markets experienced a golden age up to the second quarter of 2007 (Shadab 2009). The massive amounts of capital flowing to Private Equity funds up to this period are highlighted on an absolute and relative basis in Exhibits 1.1 and 1.2, respectively. This rise of the Private Equity mark has been attributed to the superior governance model of Private Equity relative to the publicly traded corporation ( Jensen 1989), regulatory costs of being a publicly traded company (see more generally, e.g., Bushee and Leuz 2005), the comparatively low price of debt finance up to the second quarter of 2007 (Acharya et al. 2007; Kaplan 2007), the rise of the hedge funds (Acharya et al. 2007; Shadab 2007) and sovereign wealth funds (Fotak et al. 2008; Bortolotti et al. 2009), among other things. The collapse in Private Equity since mid-2007 can be explained perhaps most directly by the collapse in credit markets and inability to effectively leverage Private Equity investments. Further, there are diseconomies of scale in managing Private Equity funds (Kanniainen and Keuschnigg 2003, 2004; Cumming 2006; Bernile et al. 2007; Cumming and Dai 2008; Cumming and Walz 2009; Lopez de Silances and Philappou 2009). Funds grew too large leading up to 2009, thereby leading to too much money chasing too few quality deals, inefficient due diligence, and too little value-added provided by fund managers. The crisis has brought on increasing calls for regulation of Private Equity funds (Cumming and Johan 2009), as well as hedge funds (Verret 2007; Cumming and Dai 2007, 2009) and sovereign wealth funds (Epstein and Rose 2009). In the 1980s and 1990s, there was comparatively little academic work on Private Equity finance. This gap in the literature was largely attributable to a dearth of systematic Private Equity data. More recently, however, there has been a growing number of academics who have taken an interest in the topic and have collected systematic data for empirical studies both in the U.S. context and abroad. This empirical work has in turn inspired theoretical analyses of Private Equity finance. As of 2009 there are a significant number of academics who have contributed greatly to our understanding of Private Equity markets. This book provides a comprehensive view of Private Equity by describing the current state of research to better understand the current state of the Private Equity market. The chapters herein discuss the structure of Private Equity funds
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Private Equity: Fund Types, Risks and Returns, and Regulation - Private Equity IN EMERGING MARKETS
Private Equity, 2011Co-Authors: Alexander Peter Groh, Douglas J. CummingAbstract:Why is there such a strong Private Equity market in the United States or the United Kingdom, why is activity relatively low in several other economically important countries, and why is it zero or close to zero in many emerging regions? Spatial variations of Private Equity activity result from numerous factors. In this paper, I summarize the literature contributions on the determinants of national Private Equity activity and comment on the consequences for the development of the asset class in emerging markets.
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Private Equity Benchmarks and Portfolio Optimization
SSRN Electronic Journal, 2010Co-Authors: Douglas J. Cumming, Lars Helge Haß, Denis SchweizerAbstract:Portfolio optimization with Private Equity is based on one of three different indices: listed Private Equity indices, transaction-based Private Equity indices, and appraisal value based Private Equity indices. We show that none of these indices are appropriate for portfolio optimization. We introduce a new benchmark index for buyouts and venture capital. Our benchmark is updated monthly, adjusted for autocorrelation (de-smoothing) and available contemporaneously. We show our benchmark enables superior quantitative portfolio optimization.
Kasper Meisner Nielsen - One of the best experts on this subject based on the ideXlab platform.
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The Return to Pension Funds' Private Equity Investments: New Evidence on the Private Equity Premium Puzzle
SSRN Electronic Journal, 2008Co-Authors: Kasper Meisner NielsenAbstract:This paper provides new evidence on the Private Equity premium puzzle suggested by Moskowitz and Vissing-Jorgensen (2002); Even professional investors like pension funds seem to get a poor risk-return tradeoff from investing directly in Private Equity. We examine whether high risk tolerance, pecuniary and nonpecuniary benefits, overoptimism or political preferences can explain why pension funds despite this invest in Private Equity. The evidence suggests that mispricing due to overoptimism and subsequent low capital gains can explain the gap in returns to Private Equity.
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The Return to Pension Funds' Private Equity Investments: Another Piece to the Private Equity Premium Puzzle?
2005Co-Authors: Kasper Meisner NielsenAbstract:Previous studies of entrepreneurs and venture capitalists have documented that the return to Private Equity investments is no higher than the return to public Equity. In this paper we estimate the return to Private Equity using a novel data set of a completely different set of investors: The population of pension funds (in Denmark). We find that during the period from 1995 to 2004 the return to Private Equity investments by pension funds has been significantly lower than their return on public Equity. We further show these investments to be at least as risky as public Equity. This finding adds another piece to the Private Equity premium puzzle suggested by Moskowitz and Vissing-Jorgensen (2002): Even professional investors seem to get a far worse risk-return trade-off from investing in Private Equity. Focusing on pension funds narrows the list of potential explanations for observing investments in Private Equity despite the poor return. We argue that the ability to derive nonpecuniary benefits is almost negligible for pension funds and that a preference for skewed returns would be inconsistent with previous research showing that pension funds tend to be prudent investors. This points to a systematic overestimation of the probability of success of Private Equity investments as a possible explanation. We investigate the source of this apparent misjudgment by comparing the earnings performance of the portfolio held by pension funds to a matched sample of similar firms. The evidence suggests that missing capital gains explain the gap in the return on Private Equity investments. JEL classification: G2; G24; G32;
Josh Lerner - One of the best experts on this subject based on the ideXlab platform.
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Private Equity and Industry Performance
Management Science, 2017Co-Authors: Shai Bernstein, Morten Sorensen, Josh Lerner, Per StrombergAbstract:The growth of the Private Equity industry has spurred concerns about its impact on the economy. This analysis looks across nations and industries to assess the impact of Private Equity on industry performance. We find that industries where Private Equity funds invest grow more quickly in terms of total production and employment and appear less exposed to aggregate shocks. Our robustness tests provide some evidence that is consistent with our effects being driven by our preferred channel. This paper was accepted by Amit Seru, finance.
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Combining Banking with Private Equity Investing
National Bureau of Economic Research, 2013Co-Authors: Lily H. Fang, Victoria Ivashina, Josh LernerAbstract:Bank-affiliated Private Equity groups account for 30% of all Private Equity investments. Their market share is highest during peaks of the Private Equity market, when the parent banks arrange more debt financing for in-house transactions yet have the lowest exposure to debt. Using financing terms and ex-post performance, we show that overall banks do not make superior Equity investments to those of standalone Private Equity groups. Instead, they appear to expand their Private Equity engagement to take advantage of the credit market booms while capturing Private benefits from cross-selling of other banking services.
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Private Equity and Employment
2011Co-Authors: Steven J. Davis, Josh Lerner, John Haltiwanger, Ron S. Jarmin, Javier MirandaAbstract:The impact of Private Equity on employment outcomes arouses considerable controversy. Critics claim that Private Equity buyouts bring huge job losses, while Private Equity groups claim large employment gains. To address the issue, we construct and analyze a new dataset that overcomes many of the limitations in previous research. We examine U.S. Private Equity transactions from 1980 to 2005, following 4,500 target firms and more than 200,000 establishments before and after acquisition by Private Equity groups. We compare employment outcomes at target firms and their establishments to controls that have no Private Equity ties and that are similar in terms of industry, size and age. Our key findings are as follows: (1) Employment declines at target establishments relative to controls in the wake of Private Equity buyouts. (2) Target establishments create roughly as many new jobs as control establishments post-buyout, but they destroy old jobs at a much faster pace. (3) However, target firms also create new jobs in new establishments at a much faster pace than control firms. Once we account for new establishments opened post-buyout, the net job loss at target firms relative to controls is about 3-4% of initial employment. (4) The sum of gross job creation and destruction rates is much higher at target firms than at controls in the wake of Private Equity buyouts. (5) These effects differ considerably across broad industry groups and between public-toPrivate and Private-to-Private transactions. Taken together, our results suggest that Private Equity groups act as a catalyst for creative destruction in the labor market, and that their employment effects vary greatly by sector and type of target.
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The Future of Private Equity
European Financial Management, 2010Co-Authors: Josh LernerAbstract:After a period of robust growth, the Private Equity industry has experienced a marked decline. In the wake of the 2008 economic crisis, the future of the venture and buyout industries seems unclear. This speech discusses four possible scenarios for the future of the Private Equity industry by examining the short‐ and long‐run determinants of Private Equity supply and demand. Possible scenarios include Recovery, Back to the Future, The Limited Partners' Desertion, and A Broken Industry. Although support is given for each of the scenarios, a clear prediction for the future remains difficult. The future of the Private Equity market is likely to be the subject of debate for some time to come.
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Private Equity and Industry Performance
National Bureau of Economic Research, 2010Co-Authors: Shai Bernstein, Morten Sorensen, Josh Lerner, Per StrombergAbstract:The growth of the Private Equity industry has spurred concerns about its potential impact on the economy more generally. This analysis looks across nations and industries to assess the impact of Private Equity on industry performance. Industries where PE funds have invested in the past five years have grown more quickly in terms of productivity and employment. There are few significant differences between industries with limited and high Private Equity activity. It is hard to find support for claims that economic activity in industries with Private Equity backing is more exposed to aggregate shocks. The results using lagged Private Equity investments suggest that the results are not driven by reverse causality. These patterns are not driven solely by common law nations such as the United Kingdom and United States, but also hold in Continental Europe.
