Private Equity Funds and Investments

Private equity represents a distinctive form of investment focused on acquiring ownership stakes in private companies that are not listed on public stock exchanges. This asset class has grown significantly over recent decades, becoming a cornerstone of modern investment portfolios.

Delegates on this course will gain a clear understanding of the entire private equity ecosystem: the different players operating in the market and the processes, instruments and vehicles which have developed to marshal the immense capital flows from investors to investment opportunities.

Particular focus is placed on studying the esoteric details of how private equity funds operate and how their behaviour and performance can be analysed, validated, modelled and forecast.

• Investment bankers
• Management consultants
• Private equity professionals in all functions
• Investment managers
• Risk and IC Committee members
• Entrepreneurs, business owners and executives seeking investment
• Quants seeking to model private equity funds and investments
• Financial regulators
• All finance professionals seeking to improve their understanding of private equity

• Understand the differences between public and private equity
• Name the key entities in the private equity ecosystem and explain their functions and relationships to one another
• Describe the lifecycle of a private equity fund
• Understand how the activities of a private equity fund marshal capital from investors to investments and distribute the returns
• Distinguish the different forms of ownership stakes in private companies
• Explain the costs and risks involved in private equity
• Analyse performance and calculate standardised metrics

• Basic understanding of financial markets
• Basic knowledge of Microsoft Excel

Introduction to Private Equity

• What is private equity?
• Forms of investment: public vs private equity
• The private equity ecosystem: funds, limited partners, portfolio companies, the general partner, the carry partner, co-investments
• Historic development of private equity markets

Private Equity Funds

• The lifecycle of a private equity fund; fund phases
• Fund-raising: marketing, commitments and close
• Capital calls and drawdowns
• Deployments: investment strategies, allocation stages and deployment curves
• Deal warehousing
• Subsequent closes and investor equalisation
• Value realisation: full vs partial
• Distribution waterfalls: European vs American, accrued hurdle
• Fund types
• How to read the fund prospectus

Workshop: Design and Operate Distribution Waterfalls

Calibrate hurdle and carry parameters to expected investment outcomes, develop a calculator to output the cashflows, run multiple outcome scenarios, and demonstrate the differences between European and American waterfalls.

Management Fees and Other Costs

• Phase-based management fee structures
• Fee coupon calculations
• Phase extensions and triggers, fee knock-outs
• Other costs and fees

Subsequent Closes

• The sub close process; the requirement of investor equalisation
• Capital re-balancing: calculations and processes
• Management fee catch-up
• Interest equalisation reward and penalty

Workshop: Manage a Subsequent Close

Gather the required data, perform the three stages of investor equalisation, generate the resulting cashflows, and analyse investor positions.

Forms of Ownership Stakes

• Equity, debt and leveraged buyouts
• SAFEs: pre-money and post-money
• Convertible notes
• Company valuations and conversion calculations

Measuring and Optimising Private Equity Performance

• Investor objectives
• Risk factors
• Fund metrics: IRR, MOIC etc.
• Measuring the impact of management fees on fund performance
• Over-commitment strategies

Leverage and Co-Investments

• Motivations for leverage
• Subscription credit facilities
• NAV financing
• Co-investments

Workshop: Analyse the Performance of a Private Equity Fund

Examine the activities of a fund, generate the cashflow streams of the fund and connected entities, estimate valuations, compute key performance metrics, and assess risk sensitivity to key parameters.

The Takahashi–Alexander Model

• Inputs and outputs
• Mathematical form and underlying assumptions
• The calibration question

State-of-the-Art Modelling of Private Equity Funds

• Event-driven structural models
• Re-enactment and historic validation
• Forecasting algorithms; calibration to real events
• High-dimensional Monte Carlo simulation
• Machine learning techniques

Workshop: Forecast Future Behaviour of a Private Equity Fund

Generate behavioural statistics for multiple funds, build a simple model encapsulating primary fund activities, calibrate it to historic behaviour, forecast expected future activity, and compose a forecasting report.