How to create a Private Equity portfolio

Document Sample
How to create a Private Equity portfolio Powered By Docstoc
					How to create a Private Equity portfolio


   Fund-of-funds invests in limited partnerships i.e. portfolio funds which invests in several portfolio companies. Fund-

    of-funds can invest alongside portfolio funds in co-investments

   Limited partnerships (K/S) has a fund size; investors pays in on as needed basis and receives distributions; are

    liquidated after 12 yrs

   A limited partnership is managed by the general partner (GP) and limited partners (LPs) commits to a fund

   Secondary funds, a fund-of-fund acquires a part of an older limited partnership which already has build a portfolio.

   Fund of funds business is a cash flow business Remaining Value = value of remaining portfolio

   Distributed = paid out to investors/limited partners

   Paid In = paid in from investors/limited partners

   TVPI = Total Value to Paid In = Remaining Value + Distributed

ATP Private Equity Partners

 Three fund-of-funds
 Managed by Private Equity Advisors ApS and
  offices in Copenhagen and New York
 €3,7bn under management
 A single LP, ATP
 Two GPs owned by partners and employees –
  invests alongside the LP and receives carried

Overview on ATP PEP I

                  Fund Basics                Paid In/Distributions
                                             Year        €called      % Paid In         €Distributed   % Distributed
Closing                         03.02.2003
                                             2003             87m                 8.7            0m                    0

Fund size                           €1 bn    2004             113m            11.3              29m               2.9

                                             2005             231m            23,1              94m               9,4
Net IRR (31.12.06)                  21.1%
                                             2006             200m            20,0             127m              12,7

Total Value to Paid In              1.30 X   Total            631m            63,1             250m              25,0

       Partnership Investments                                     Co-investments
Total committed                   €819,4m    Total invested                                                 €52.7m

No. Of partnerships                    23    No. Of companies                                                      4

No. Of p-com’s.                       250    Total Value to Paid In                                          1.60 X

Total Value to Paid In              1.27X
Overview on ATP PEP II

                  Fund Basics                Contributions/distributions
                                             Year         €called      % Paid in         €distributed       % distributed
Closing                         01.04.2005
                                             2005              26.6m               1,8                  0                   0

Fund size                         €1,5 bn    30.06.2006       165,4m           11.0            15,6m                   1,0

                                             Total         €192,0m             12,8           €15,6m                   1,0
Net IRR (31.12.06)                 19,2 %

Total value to Paid in              1,11 X


       Partnership Investments                                      Co-investments
Total committed                   €694.1m    Total invested                                                        15,1m

No. Of partnerships                    27    No. Of companies                                                               1

No. Of p-com’s.                        93    Total value to Paid in                                                 1,0 X

Total value to Paid in              1,11 X
How to create a portfolio

1. The most important decisions
2. Sourcing
3. Due diligence – commercial and legal
4. Diversification and portfolio monitoring

The most important decisions

 Ambitions ? Everybody says highest returns
 Strategy - get it right from the beginning – PE is
  probably the most long term asset class
 Positioning as an investor
 Get resources allocated in line with strategy
 Peoples business – networking is essential

Single funds or a fund-of-funds ?

 Diversification offsets the additional          %               Individual
                                                                                 Fund of funds

  layer of fees
 The table shows fund-of-funds                   Mean IRR        10,83          15,29
  offers higher returns + lower risk
  compared to the individual funds
 Access to top tier funds not                    Median IRR      8,54           14,03

  generally available
 Due diligence capability and                    Standard        26,19          7,72
  investment experience                           deviation

                                 Source: Journal of Alternative Investments, Spring 2005, page 38   8
The dilemma

                               t rong te
                        N ew s       or too f
                                             as t
                      - too sm          ing                         r
                            f undrais                       er forme st ors
                                                    Top p ew inve
 Expected return

                                                      ed fo
                     New                        No ne
                                       Etablished large managers
                                        - commodity type product
                                           and average returns

                   Fund I       Fund II         Fund III    Fund …            9
Sourcing – ATP PEP’s experience

 Open door policy
 Proactive search
 Speaking at conferences
 Systematic information    200
  gathering and analysis                                          # Meetings
                            150                                   # Due diligence
 Long term planning                                              # Commitments
 ”Don’t miss the train”

                                  2001 2002 2003 2004 2005 2006
Due diligence – ATP PEP’s experience

 No single approach – all funds are different
 We focus on consistency of:
  -   Strategy
  -   Team
  -   Track record
  -   Investment processes
  -   Terms and conditions
 Some investors use questionnares

ATP PEP’s databases

 Tracking all meetings
 Updating of track record
 References
 Knowledge management
 Resource management

A special focus on Terms and Conditions

  -   We deal with limited           -   We seek to ensure ATP
      partnership agreements             minimize taxation outside DK
      every day – the GP’s every
      third or fourth year.          -   We seek to ensure ATP’s other
                                         investments doesn’t get
  -   We know the market
      standards and where we             affected by our investments
      have to use a commercial       -   We scrutinize every
      approach                           investment’s tax issues and
  -   Most of the pitfalls appears       uses local tax due diligence
      after sevaral years                advisors
  -   We maintain an internal
      database for terms and

Diversification and portfolio monitoring

                 Europa             Nord Amerika



ATP Private Equity Partners experiences

 Financial markets are cyclical
 Diversification is key to success
 You have to patient
 It takes a long time to establish a track record
 The most successful managers prefers
  successful investors who are long term players
 We had a good start when capital was scarce
 Don’t sit and wait

Performance review

             Fundsize    Drawn in % of    Total Value     Distributed to   IRR since
             in €m       commitment       to Paid In      Paid In          inception %

ATP PEP I        1.000               61            1,30            0,41                  21

ATP PEP II       1.500               12            1,11            0,08                  19