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About the course
Private markets attract a considerable amount of attention and enthusiasm for their performance, diversification effects, and growth of assets under management. Among the different strategies, private equity capitalises on new technologies and trends (venture capital), fast growth companies (growth capital), repositioning of assets and strategic evolutions (leveraged buyouts). Private debt aims at providing investors a differentiated exposure to yield (senior/direct lending), possibly including capital gains (mezzanine debt) and to company restructuring (distressed debt, loan-to-own). Private real assets (private real estate, private infrastructure, timber, natural resources) offer different combinations of yield capital gains, inflation protection and downside protection. All these strategies share common traits, such as the use of equity and debt instruments, over a rather long duration, with active involvement of fund managers and negotiation of specific rights, usually to support high risk/high return projects.
This masterclass provides delegates with a comprehensive understanding of private markets. It will:
- Examine the role of private markets in an asset allocation, the instruments used and the challenges associated with their use
- Examine the dimensions of private markets investing and the tools that investors use
- Illustrate the portfolio construction process
- Analyse the economics of private markets funds, their fund raising process and their investor relations
- Analyse a representative LBO transaction from deal sourcing, to structuring, to execution, to exit
- Illustrate key due diligence issues
- Demonstrate how to structure and fund deals
- Examine valuation methods, and apply the most frequently used
- Demonstrate how to generate returns through value creation post-acquisition, use of tax and financial leverage, operational improvements, 100-day plans and other operational and strategic improvements
- Review exit scenarios such as trade sale, dividend recaps, IPOs, and write-offs
- Explore reporting of funds, and accounting frameworks
Attendees will see private markets from the standpoint of both:
- The buy-side (investors), i.e. capital providers to the asset class, looking to commit it according to specific risk-return-liquidity dimensions
- Fund managers (front office), i.e. intermediaries investing capital to acquire, grow and sell companies and assets
- Fund managers (middle and back office), i.e. Intermediaries fund raising, monitoring investments and reporting on it
- The sell-side (ecosystem), i.e. intermediaries assisting fund managers or interacting with them
The course will combine dynamically presentations, ateliers, business cases, role playing and interactive Q&A sessions. Active participation is encouraged, and practical exercises will be used.
MODULE 1: PRIVATE EQUITY FOR INSTITUTIONAL INVESTORS AND CONSULTANTS
Private equity: asset allocation, instruments and strategies
- Private equity, private debt, private real assets: strategies and instruments
- The private equity value chain
- Levels of intermediation: direct/co-investment, funds and funds-of-funds
- Challenges: Why is investing in private markets difficult?
- Current debates: reputation, clichés and reality
The three dimensions of private markets investing
- Liquidity: measurement and constraints
- Returns: measurement (IRR, MOIC, PME), comparison, dynamics and interpretation (net/gross)
- Atelier: illustrating the limits of the IRR
- Risks: measurement, limits
- Benchmarking: data sources, quartiles (limits)
- Current debates: lines of credit (equity bridge financing), the cost of unused capital
Asset allocation and private markets
- Perspective on private markets: volumes, evolution, geographical and strategic breakdown
- Risk-return-liquidity: setting up a portfolio (market neutral portfolio)
- Top-down and bottom-up approaches
- Business case (Yale endowment)
- Current debates: numerator and denominator effects
Private equity funds: functioning and selection
- Listed versus unlisted funds
- Fund managers and structures (LP, SIF, RAIF, FPCI, SPAC, BDC, VCT,...)
- Functioning of a fund (vintage year, investment and divestment period...)
- Specificities: capital deployment, dry powder, J- curve
- Functioning of a fund manager
- Economics (fees, hurdle, carried, catch-up...)
- Atelier: fund waterfall (US / European) illustration
How to convince investors and keep them happy? Fund raising and structuring, investors relations
Who are the investors and how do they think
- Typology of investors and their priorities
- Sources of capital and constraints
- How do investors think?
- What do investors want?
- The big puzzle of alignment of interests
- Current debates: number of fund relationship, one-stop shop, alignment of interests
Fund raising: a permanent process
- Setting the scene: number of fund managers, volumes raised, dry powder
- The process of fund raising: timing, length, success rate
- The ecosystem: placement agents, gatekeepers, sponsors, etc.
- Workshop documentation: PPM, presentation, track record, pipe-line, pitch...
- Specificities: track record, first-time funds, cycles
- Current debates: staple financing, funds of funds, concentration of fund managers
Role playing game: the case of a mid-market BO fund raising
- Introduction and groups
- Reading and brainstorming
- Preparation of group work
- Debate and debriefing
Communicating: reporting, AGM and other channels
- Information asymmetries, due diligence and limits
- Balance of power
- The LP’s choice: exit, voice or loyalty
- Exit: dynamics, difficulties and limits
- Workshop: is changing the fund manager really an option?
- Voice: ‘diplomacy’ (lobbying, pressure, scandals), war (trials and regulators) and negotiations (LPA to regulations)
- Loyalty... or not: re-committing to a fund, dropping one, getting access
*MODULE 2: PRIVATE EQUITY INVESTING *
Investing: Funds, funds-of-funds, mandates, co-investments
Setting the right environment
- Choosing the right environment for selecting funds: from outsourcing to in-house operations
- Setting up the right program, depending on the constraints
- Challenges: adverse selection, contagion, lack of alignment of interests, conservatism, herding effects
- Workshop: endowment, family office, pension funds – alike and different
- Competition between investors
- What managers look for in an investor?
Selecting funds and fund managers
- Selecting funds (and funds-of-funds): sourcing, approaching and accessing
- Specificities: persistence of return
- Workshop documentation: The private placement memorandum
- Workshop documentation: The due diligence questionnaire (and the DD pack)
- Request for proposals: virtues and limits
- Current debates: concentration of fund managers, conflicts of interests, generational change
- Workshop documentation: the Limited Partnership Agreement
- Most frequent clauses: key man, most favoured nation
- Sponsor (or lack thereof)
- First closing participation and other advantages
- Advisory Board and representation
- Current debates: fee level, hidden fees, hurdle rate,...
The temptation of co-investing
- Set up and resources
- Business case: Formula 1 and the GPFG
- Statistics on co-investing
Investing in private companies: sourcing, analysing, negotiating, creating value and exiting
- The investment process: five steps
- Choosing the tools: the case of the LBO
- Other types of investments
Analysing a deal: mid-market cleaning company (business case I)
- Interactive business case (no preparation): deal analysis I
- Interactive business case: deal analysis II
- Negotiation and valuation
Analysing a deal: the case of a mid-market cleaning company (business case II)
- Leverage effects
- Performance calculation and analysis
- Limits and risks
The deal and post-investment activities
- The closing and its legal documents
- 100-day plan, implementation, most frequent operations
- Value creation
Cyril Demaria capitalizes on 18 years of experience in private equity investments (venture capital, funds selection), fundraising and structuring (start-up and funds), research and advisory. He combines practical and entrepreneurial experience, academic knowledge and lecturing experience. He is ...
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