private equity and hedge fund
TRANSCRIPT
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Hedge Fund
&
Private Equity
Team Number - 7
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Indian Scenario and PE & HF
Source of Job Creation
Source of Finance
For Expansion Requires Money More number of SMEs are coming
For Economice Growth
Lack of capital is barrier of growth
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ORIGIN OF HEDGE FUNDS - A BRIEF HISTORY
Alfred Winslow Jones, a sociologist, Fortune magazine investigating fundamental
and technical research on forecasting
the stock market
Setup an investment fund with himself asgeneral partner
Incentive fee amounting to 20% of any realized profits orgains with no fixed fees.
Fortune magazine article, in 1966,branded the market-neutral strategy that Jones designed as a hedge fund.
Definition :- any unregistered, privately-offered,managed pool of capital for wealthy, financiallysophisticated investors .
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Trading strategies
Equity,
Fixed-income
Mathematical algorithms
Algo-Trades
Techniques :
Short-selling
ArbitrageHedging
Leverage
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RISKS IN HEDGE FUNDS
Minimally regulated and least transparent &requires a lot of due diligence work.
Managers do not disclose information on a regular
basis (in order to protect their trading strategies).
Performance reporting is voluntary in the
industry, making industry statistics less reliable.
Retain the best brains in investment management.
Encourage greater risk-taking in order to ensure
that the fund is productive.
High investment minimums
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Private Equity- An Introduction
Private equity funds are investment companies that, do not hold publicly-traded securities.
Instead, they normally seek equity stakes (that is, partial ownership) in
private companies..
Structure of PE Funds
InstitutionalInvestors
PE firm
Company A Company B Company c
Fund 1 Fund 2
High Net worthIndividual
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What Private Equity offers ??? To the Company
Strong capital base for future expansion
Accelerated growth possible because of PEs value addition
Viable alternative to expensive debt
Good for small size companies looking to access capital
Helps improves corporate image & profile
Useful for companies which have long gestation projects as PE investors canoften take a long term (3-6+ years view)
Provides a valuation benchmark for future fund raise events
Funds may bring expert financial / capital structuring advise
To the Investors
Ability to realize High growth & High Returns
Identify potentially high value companies at an early stage
Ability to acquire meaningful stakes (10-100%) in companies which is typically
difficult in listed companies
Option of having multiple exit routes such as IPO, secondary sale, strategic sale,
sale back to promoters, etc.
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Key Ingredients of a PE Deal
Which Investor?
What valuation?
What deal structure?
What investor rights?
What exit terms?
What due diligence?
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Stages and Nature of Investments
Maturity of the Company
Aster Infrastructure
INX Media
JustDial
Lemon Tree
Meru Cabs
Suzlon Energy
Apollo Hospitals
Allcargo Global
M&M Finance
Nagarjuna Const.
Reid & Taylor India
Aditya Birla Telecom
ExcelsoftPunjab Tractors
Sanghvi Movers
Flextronics
Gokaldas
Sigma Electric
Intelenet Global
Spice Jet
DLF Assets Buying out other
investors
Replacement
Capital Usually associated
with a change in
management.
Transaction is
typically leveraged
Buyout
Product or service
is ready
Aim is to launch it
in the market
Early Stage Directed at growth
and expansion of the
enterprise
Expansion Stage
May include
project financing,
one-time
opportunities etc.
Special Situation
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What PE Investors Look For?
Overall sector attractivenesspotential for strong future growth
Reasonable valuation
Companys ability to deliver consistent earnings growth
High return ratioshigh return on capital employed and return onequity are the most significant parameters for investors
Enunciation of clear exit opportunity
Reputed promoters, strong franchise and a top class managementteam
Clear enunciation of a business strategy/future plans
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Key Challenges
Buyout Challenges
Focus on Current Scenario
IPO an attractive option
Cautious for fresh Investments
Willing to invest in sound companies
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Annual deal value in Asia Pacific ($ Billion)
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Sector-wise Deal Activity CY11