Beyond the J Curve. Managing a Portfolio of Venture Capital and Private Equity Funds. The Wiley Finance Series

  • ID: 2211152
  • Book
  • 384 Pages
  • John Wiley and Sons Ltd
1 of 4

BEYOND THE J CURVE

Thomas Meyer & Pierre–Yves Mathonet

In recent times, venture capital and private equity funds have become household names, but so far little has been written for the investors in such funds the socalled ′limited partners′. Beyond the J Curve provides an innovative toolset for such limited partners to design and manage portfolios tailored to the dynamics of this market place, going far beyond the typical and often–simplistic recipe to ′go for top quartile funds′.

′The authors of Beyond the J Curve have taken on the ambitious project of analysing the difficult and controversial area of valuing fund portfolios. Their innovative and integrated approach opens up the framework within which these valuations are practised by investors, and offers alternatives. Beyond the J Curve is a thorough and pioneering contribution to the current debate.′
Javier Echarri, Secretary General, European Private Equity & Venture Capital Association (EVCA)

′In this groundbreaking book, Meyer and Mathonet provide both the theoretical underpinnings for, and practical realities of, building a successful portfolio of private equity investments. It is an invaluable resource for any institutional investor who is constructing or managing a portfolio of investments in private equity and/or venture capital.′
Mark D. Wiseman, Chairman, Institutional Limited Partners Association (ILPA)

Beyond the J Curve is right on target, giving the private equity investment manager much–needed guidance on how to put private equity into a modern diversified investment portfolio. It provides practical, comprehensive advice on traversing the often risky waters of venture and private equity investing and provides a thorough and advanced introduction. It should become a ′musthave′ reference.′
Jesse E. Reyes, Managing Director, Reyes Analytics

READ MORE
Note: Product cover images may vary from those shown
2 of 4
List of Boxes xv

Acknowledgements xvii

Disclaimer xviii

PART I PRIVATE EQUITY ENVIRONMENT 1

1 Introduction 3

1.1 Routes into private equity 3

1.2 The limited partner′s viewpoint 4

1.3 The challenge of venture capital fund valuation 4

1.4 Hard figures or gut instinct? 5

1.5 Managing with fuzzy figures 5

1.6 Making the grades 5

1.7 Outline 7

2 Private Equity Market 9

2.1 Funds as intermediaries 10

2.2 The problem of predicting success 15

2.3 Broad segmentation of investment universe 18

2.4 Private equity market dynamics 22

2.5 Conclusion 26

3 Private Equity Fund Structure 27

3.1 Key features 29

3.2 Conflicts of interest 38

3.3 Finding the balance 38

4 Buyout and Venture Capital Fund Differences 41

4.1 Valuation 43

4.2 Business model 44

4.3 Deal structuring 45

4.4 Role of general partners 45

5 Funds–of–funds 47

5.1 Structure 47

5.2 Value added 48

5.3 Costs 51

5.4 Private equity investment programme 52

PART II INVESTMENT PROCESS 57

6 Investment Process 59

6.1 Key performance drivers 59

6.2 Process description 61

6.3 Risk management 65

6.4 Tackling uncertainty 68

7 Risk Framework 73

7.1 Market value 75

7.2 Market or credit risk? 77

7.3 Conclusion 78

8 Portfolio Design 81

8.1 Portfolio design framework 81

8.2 Portfolio construction techniques 83

8.3 Risk return management approaches 88

9 Case Study 95

9.1 Looking for the optimal programme size 95

9.2 Overcoming entry barriers: long–term strategies 104

10 The Management of Liquidity 115

10.1 Liquidity management problem 115

10.2 Liquidity management approaches 123

10.3 Investment strategies for undrawn capital 130

10.4 Cash flow projections 133

10.5 Conclusion 145

PART III DESIGN TOOLS 151

11 Established Approaches to Fund Valuation 153

11.1 Bottom–up approach to private equity fund valuation 154

11.2 Inconsistency of valuations 157

11.3 NAVs do not tell the full picture 157

11.4 Portfolio companies cannot be valued in isolation 159

11.5 Conclusion 162

12 Benchmarking 165

12.1 Specific issues 165

12.2 Individual funds 166

12.3 Portfolio of funds 170

13 A Prototype Internal Grading System 173

13.1 Grading of private equity funds 173

13.2 The NAV is not enough 174

13.3 Existing approaches 176

13.4 New approach to internal fund–grading system 180

13.5 Summary NAV– and grading–based valuation 188

13.6 Conclusion 189

14 Fund Manager Selection Process 193

14.1 Relevance of fund manager selection 193

14.2 Why due diligence? 194

14.3 The due diligence process 195

14.4 Fund manager selection process 197

14.5 Decision and commitment 201

15 Qualitative Fund Scoring 219

15.1 Scoring approach 219

15.2 Scoring dimensions 221

16 Grading–based Economic Model 233

16.1 Approach 233

16.2 Internal age adjustment 237

16.3 Private equity fund IRR projections 238

16.4 Expected portfolio returns 239

16.5 Discussion 241

16.6 Conclusion 242

17 Private Equity Fund Discount Rate 253

17.1 The capital asset pricing model 253

17.2 Private equity fund betas 257

17.3 The alternatives to the capital asset pricing model 264

17.4 Summary and conclusion 266

PART IV MANAGEMENT TOOLS 269

18 Monitoring 271

18.1 Approach to monitoring 272

18.2 The monitoring objectives 273

18.3 Information gathering 276

18.4 Evaluation 282

18.5 Actions 285

19 Case Study: Saving Your Investments Approaches to Restructuring 287

19.1 The valley of tears 288

19.2 The report to the board 289

19.3 The terms of the restructuring 291

19.4 Epilogue 293

20 Secondary Transactions 297

20.1 Sellers and their motivations 297

20.2 Buyers and their motivations 299

20.3 Secondary market prices 300

20.4 Transactional issues 307

20.5 The fund manager perspective 308

PART V EMBRACING UNCERTAINTY 311

21 Deviating from Top Funds 313

21.1 Strategic investments 313

21.2 Policy objectives 314

22 Real Options 319

22.1 Real options in private equity 319

22.2 Real option analysis 321

22.3 An expanded strategy and decision framework 322

23 Beyond the J–curve 327

23.1 Some do it better 327

23.2 Deadly sins 327

23.3 Structure instead of "gut instinct" 328

23.4 Patience is a virtue 328

23.5 Turning water into wine 329

Glossary 331

Bibliography 341

Abbreviations 351

Index 353

Note: Product cover images may vary from those shown
3 of 4

Loading
LOADING...

4 of 4
Thomas Meyer
Pierre–Yves Mathonet
Note: Product cover images may vary from those shown
5 of 4
Note: Product cover images may vary from those shown
Adroll
adroll