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Listed private equity

The private equity model

Private equity contains numerous benefits:
  • A large universe of target companies
  • Time and resources to study and assess opportunities within industries, and analyse and value the target companies best positioned to grow and capitalize on the secular trends within those industries, as well as the risks of potential investments and how best to mitigate them
  • Patient and engaged ownership, less concerned with short term performance targets, but vigilant on achieving broader and longer-term value creation in line with an investment thesis and with detailed value creation objectives
  • Ability to modify business plans or change management teams as required in order to achieve objectives
  • Clear accountability between company managers and shareholders, combined with the ultimate objective of a realization and incentive structure directly linked to tangible value-creation.

The private equity model

The private equity model has a number of distinctive characteristics:
  • Ability to tap debt markets and include substantial proportions of debt to finance the acquisition of the invested companies
  • Longer term results: the average private equity investment cycle leads a significant part of performance to be skewed towards the last years of the life of a fund. Accordingly, fund performance must be assessed over the long term
  • The majority of private equity capital is administered through institutional limited partnership funds, which are highly illiquid, privately negotiated vehicles with very high minimum investment sizes.