Private Equity Fund
This is an example of Private Equity Fund. This document is useful for studying Private Equity Fund.
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Learning Curves OED July 2008 Private Equity Fund Operations Private equity funds give small and medium enterprises access to technology and equity capital. Asia is the dominant destination for private equity in emerging economies—annual fundraising rose from $2.2 billion in 2003 to $23.1 billion in 2007, concentrating in India and the Peopleʹs Republic of China. Half of ADBʹs outstanding capital commitments to private equity funds were approved from 2003. The portfolio is concentrated, with two countries making up half of investment (and four countries accounting for three quarters.) Regional, non sector specific funds dominate, forming half of investments. Telecommunications, transport, and utilities explain half of investments. A recent evaluation study rated operations ʺpartly successful.ʺ Background mobilization, and evidence of positive direct company outcomes. But business success was less evident and Almost all multilateral development banks and assigned a rating of ʺpartly satisfactory.ʺ Issues of bilateral development finance institutions invest in environment, social, health, and safety appeared to private equity funds to promote small and medium have been addressed effectively and were judged enterprises in developing countries. The Asian ʺsatisfactory.ʺ As development impacts in the past Development Bank (ADB) made its first investment in appear to have been positive, private equity funds are 1983. Between then and 31 December 2007, investments profitable (even if financial internal rates of returns in 75 private equity funds were approved for a have not exceeded their cost of capital), and combined value of $900 million. Such investments are environment and social performance met expectations, now a core activity of the Private Sector Operations an overall rating of ʺsatisfactoryʺ was given to the Department in ADB: at 31 December 2007, it had 40 development outcomes and impacts criterion. active funds with a total approved value of $676.4 ADB investment profitability has been improving but million. overall performance has been poor. The nominal In 2007, building on work performed in 2002, the financial internal rate of return for the portfolio was Operations Evaluation Department in ADB conducted a 7.5%, slightly more than 50% of ADBʹs average required Special Evaluation Study on Private Equity Fund rate of return for private equity funds of 14.3%. ADB Operations 1 to identify how their contribution to investment profitability was rated ʺunsatisfactory.ʺ private sector development might be enhanced. The ADB work quality was evaluated in consideration of portfolio was examined in terms of: (i) development (i) screening, appraisal, and structuring; (ii) monitoring outcomes and impacts, (ii) ADB investment profitability, and supervision; and (iii) ADBʹs role and contribution (iii) ADB work quality, and (iv) ADB additionality. to the projects. The study noted that the screening Summary of Findings process had demonstrated a lack of strategic focus, and The development outcomes and impacts of ADBʹs the identification of investments has been primarily private equity fund operations were evaluated from the reactive in response to sponsors approaching ADB. standpoints of (i) private sector development; (ii) Appraisal and structuring had been satisfactory. business success; and (iii) environment, social, health, However, post investment approval, funds had often and safety performance. The private sector departed significantly from approved investment development criterion was assigned a rating of concepts and few mechanisms were available to the ʺsatisfactoryʺ due to generally positive beyond‐ Private Sector Operations Department to mitigate this company impacts, especially with regard to resource risk. Monitoring and supervision had been weak, Operations Evaluation Department 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Asian Development Bank Tel +63 2 632 4444; Fax +63 2 636 2444; email@example.com; www.adb.org/evaluation/ primarily due to disparity in the quality of reporting and (vii) the adequacy of resources for managing the and weak information management systems. Once private equity fund portfolio. funding is committed, the department is largely Recommendations dependent upon fund managers to achieve positive development and financial results by relying upon a ADBʹs Management was invited to consider: combination of commercial incentives and a set of high‐ Strengthening country programming arrangements level investment restrictions that have little relationship so there is better coordination within ADB at the with development objectives. As a result, the overall country and sector level when seeking to develop rating for ADBʹs work quality was ʺpartly satisfactory.ʺ the nonbank financial sector for private sector ADB additionality was examined based on whether development. ADB finance had been a necessary condition for the timely realization of investments, and ADBʹs Preparing an operational strategy for private equity contribution and function had improved development funds that would set out principles for managing the impact. The study indicated that in the past ADBʹs overall portfolio, and identify targeted countries and participation had provided additionality by catalyzing subnational regions, sectors, stages of firm private investment in private equity funds. However, development, styles and sizes of funds, and desired this impact had been declining over time due to the development impacts, for circulation to all regional continued focus on India and the Peopleʹs Republic of departments. China, where ADBʹs demonstration and risk mitigation Upgrading portfolio planning and management and impacts for private equity funds have been declining in reporting systems for private equity funds to recent years, as demonstrated by the rapid growth in facilitate management as a standalone portfolio and private equity in these markets. Due to resource reinforce development impact monitoring. constraints, the Private Sector Operations Department had had limited ability to directly add value to private Strengthening the risk‐management systems for equity fund operations and strengthen their private equity funds by putting in place capacity to development impacts. The rating for ADB additionality independently monitor projects post‐approval from was judged ʺpartly satisfactory.ʺ a financial, social, and environmental perspective. Assessment of ADBʹs Private Equity Fund Operations Clarifying organizational roles and responsibilities, with particular regard to making greater use of Criterion U PS S E resident missions for operations in private equity Development Outcomes & Impacts X • Private Sector Development X funds, and the need to complement regional • Business Success X department operations. • Environment, Social, Health & X Safety Performance Allocating sufficient resources in the areas of ADB Investment Profitability X budgeting and staff to efficiently and effectively ADB Work Quality X manage operations in private equity funds. ADB Additionality X Feedback Legend: E = excellent, PS = partly satisfactory, S = satisfactory, U = unsatisfactory. At the time of preparation of these Learning Curves, The overall assessment of ADBʹs private equity fund ADB Managementʹs Response and the Chairʹs operations, as justified by the underlying ratings for Summary of the Development Effectiveness development outcomes and impacts, ADB investment Committee Discussions were not yet available for profitability, ADB work quality, and ADB additionality disclosure to the public. The study was completed in was ʺpartly successful.ʺ July 2008. The study discerned issues touching: (i) the development justification of funds, (ii) the balance in 1 ADB. 2008. Special Evaluation Study on Private Equity ADB’s portfolio between private equity funds and Fund Operations. Manila. Available: direct equity investments, (iii) lack of strategic focus of http://adbweb/Documents/SES/REG/SST‐REG‐2008‐ fund operations, (iv) style drift, (v) weaknesses in 17/SST‐REG‐2008‐17.pdf management reporting, (vi) the organizational framework for private equity fund operations in ADB, Learning Curves available @ www.adb.org/evaluation/ Team Leader: Bob Finlayson; Tel +63 2 632 4107; firstname.lastname@example.org
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