FindingsInsights from the world’s best private equity research issue 1 autumn-winter 2009

Inside from credit bubble to zombie companies -What’s next for private equity? better boards What can public companies learn- from private equity? Quick flips or long haul? -The truth about buy-outs Busted brands Can the top GP names win back- the banks? annual coller prize Best case study, best management report

including contributions from: booth school of business l columbia school of business l harvard Business school business school l stockholm school of economics l university of florida Private Equity Findings Contents Foreword

indings come from a rigorous examination of the Editorial Board facts. Through their discovery, data is transformed to create knowledge that others do not have. Professor Viral Acharya By the numbers ExpectedF and unexpected, they are the culmination of 4 Defaults on the up. Corporate venture capitalists prove their worth. The Jeremy Coller cutting-edge research. They dispel popular misconceptions, incredible shrinking predictions of assets Professor Francesca Cornelli making us better informed in areas we think we know or Professor Eli Talmor want to know more about. Professor Eli Talmor Housed within London Business School, the Coller Institute after the credit bubble of Private Equity has as its primary mission the establishment 6 Steven Kaplan, Laurent Haziza and Tom Dean on zombie credits, defaults, of a world-renowned research centre and debating forum on private equity. Key to our success is creating a bridge commitments to private equity and future return prospects between the practitioner and academic worlds. Professor Viral Acharya Private Equity Findings is a significant addition to our Head to head: In it for the long haul? communication channels and a key initiative in achieving this vision. By synthesising the world’s leading academic 10 In contrast to popular opinion, buy-out houses generally invest for the long term, research in a refreshingly designed format, we hope that according to research by Sorensen, Strömberg and Lerner Findings not only appeals to the academic and practitioner communities, but reaches all with an interest in learning more about the deeper issues relevant to this industry. Roundtable: The perfect board Findings are integral to our Annual Symposium; the 12 Research shows that private equity houses routinely create more effective boards Institute’s flagship event. This first issue features some of than public companies. A panel of experts explains why the research presented in June 2009: • the effect of the 2007-09 crisis on private equity’s future; • why private equity creates better boards than other forms beyond the abstract: it’s all about the brand of corporate ownership; Published by Bladonmore (Europe) Limited Reputation has been a key factor in securing the best debt deals from banks. So • incentives of private equity funds to do long-term 17 Editor: Vicky Meek investments versus quick flips; what happens now in the wake of the credit crisis? Managing Editor: Sean Kearns • the role of fund-level reputation in driving outperformance We are grateful to the scholars who have contributed to Sub-editor Lynne Densham this issue, and particular thanks must go to our Executive Coller Institute of private equity news Art Director: Owen Thomas Director, Ann Iveson, who has been instrumental in creating 22 Revealed: winners of the prestigious Annual Coller Prize for student research, plus Designers: Ivelina Ivanova, this publication. coverage of the second annual Symposium Oliver Smee We hope Findings enriches your knowledge of private equity and look forward to receiving your feedback. Production Manager: Andrew Miller Publisher: Siân Mansbridge Publishing Director: Sophie Hewitt-Jones

James Carey James Group Managing Director: Richard Rivlin Professor Eli Talmor Professor Viral Acharya T: +44 (0)20 7631 1155 Chair Academic Director 2007-2009 Coller Institute of Private Equity Illustrations: E: [email protected] Coller Institute of Private Equity

2 3 Private Equity By the numbers Findings

LPs TO SCALE BACK GP RELATIONSHIPS What’s in an IRR? LPs’ plans for their number of active LPs’ plansGP re forlation theirships number in 2 ye ofars’ active time Faced with capital constraints and a more LPs’ plans for their number of active risky investment climate, LPs are exhibiting GP relationshipsGP relationships in 2 years’ time % of CVC-backed IPOs with highly a clear ‘flight to quality’ in their selection of reputable underwriter GPs, according to Coller Capital’s latest Global Private Equity Barometer. 36% 34% $ $ l Some 31% of LPs expect to commit to 100 100fewer private equity funds over the next two $ years – up from a consistent 10% in previous Barometers. 80 30% 80l A fifth of LPs plan to reduce their target trn trn trn allocation to private equity over the next year (vs just 3% to 6% in previous reports). Additional leverage 4 60 Stock market return (same sector, 9.7 6 l The vast majority of LPs (84%) have also time frame and leverage) 12 60 % now refused to re-up with at least one GP in Private equity strategic and operational improvement Summer 2006 Summer 2009 the last 12 months, nearly double the 45% 40 Source: Challenges in a new world: How do private investors create value?, Ernst & Young (2009)  Sovereign wealth funds’ forecast assets  The amount Jen predicted SWFs would  The amount SWFs are now likely to Summer 2006 Summer 2009 found in Coller’s summer 2005 Barometer. 100 40 under management in 2015 – projected in be managing by 2015 in projections put struggle to reach by 2012, following their Increase No change Decrease Source: Global Private Equity Barometer 2007 (assuming inflows of $40bn a year) by together in 2008. He estimated they lost losses from the financial economic crisis20 The largest element of European 80 Increase No change Decrease Stephen Jen, formerly of Morgan Stanley’s about 25% in the first three quarters of 2008, and the fall in oil and commodity prices. private equity returns from exits Global Economic Forum team. with assets falling60 from $3trn at the beginning (Chatham House and Fondazione Eni completed between 2005 and 20 of 2008 to $2.3trn by October that year. Enrico Mattei estimates.) 0 2008 was hands-on involvement % of CVC-backed IPOs with highly CVC-backed The true value of corporate VCs 40 % of VC fund-backed with portfolio companies, reputable underwriter % of CVC-backed IPOs withl highly Corporate reputable venture underwriter capitalists (CVCs) are Corporate versus according to a study by Ernst & 20 0 holdingshighly as a % important of CVC-backed in the early stages of venture capital funds Young. The analysis sought to shares sold in IPOs 0 entrepreneurial companies’ lives, providing determine how much of private 100 % of CVC-backed IPOs with analyst coverage 100 % finance to businesses that wouldn’t receive VC-backed equity’s returns in the period were Defaults set to rise sharply CVC-backed pure venture capital funding because of generated by leverage and how A wall of debt in large European private equity-backed deals 80 their perceived youth and riskiness. much by operational and strategic matures from 2012 onwards. Yet many companies are l At the earliest stages, CVCs provide value 80 improvement, such as add-on 56The percentage of UK exits by private by prompting venture capitalists (VCs) to acquisitions, organic growth and facing a serious refinancing risk, says ratings agency Fitch. equity houses via receivership60 in the co-invest. They also allow companies efficiency gains. The stock market (Em) first half of 2009, according to the access to the public markets at an earlier 60 return captures change in share 60,000 Centre for Management Buy-Out% stage of their development than pure price and dividends received, Research (CMBOR). There were40 no IPOs. VC-backed businesses. % providing a benchmark deal by 50,000 l They can help businesses attract higher deal of companies in the same 40 valuations on IPO. Median CVC-backed sector, country and time weighting. 40,000 20 businesses achieve between 40 and 216 The sample consists of European % percentage points more than VC-backed buy-outs that had an enterprise 30,000 counterparts at the offer price and 20 value of more than €150m at the 0 20,000 between 50 and 300 percentage points on point of acquisition or entry. % of VC fund-backed the first day of trading. Volume of scheduled debt amortisation Volume 10,000 % of CVC-backed IPOs with highly reputable underwriter 1The percentage6 of UK exits by private Source: How Do Corporate Venture Capitalists Create Value for 0 Institutional investor holdings as a % of CVC-backed Entrepreneurial Firms? Thomas Chemmanur and Elena Loutskina, equity houses via receivership in the shares sold in IPOs % of IPOs with Institutional % of IPOs with 0 University of Virginia (2008) highly reputable investor holdings as analyst coverage 2009 2010 2011 2012 2013 2014 2015 2016 2017 first half of 2005, according to % of CVC-backed IPOs with analyst coverage underwriterVC-backed a % of shares sold CMBOR. There were 10 IPOs. in IPOs Source: Fitch (April 2009) CVC-backed

l The amount of debt that needs to be their earnings suppressed by lower demand. refinanced in Fitch’s shadow-rated portfolio l Even if companies focus on using free (which mainly includes buy-out deals done cash flow to pay down debt, on average, they in 2006 and 2007) peaks sharply in 2014. will only be able to bring down total debt to l Companies that had expected to just over 5.5x EBITDA, higher than the deleverage naturally over time have seen current average in new deals of 4.5 times.

4 5 Private Equity Analysis Findings

of all big public-to-private deals Deals in the last wave have coverage defaulted. This downturn may be ratios more in the 1.5 to 2.0 range. worse, but the deal structures of They also have more lenient debt After the credit bubble 2005 to 2007 in terms of coverage repayment schedules. Private equity ratios and debt repayment schedules firms have responded quickly to the are less onerous than in the 1980s. downturn, so EBITDA is not diving.” Private equity firms have been more Private equity has undergone a turbulent time over the last 18 aggressive and have more expertise How real is ‘zombification’ of to deal with the downturn.” private equity-owned companies, months, so where does that leave it as an industry? And what shape where lenders avoid write-offs will it be in for years to come? David Haarmeyer investigates. To what extent are capital to prevent further weakening of structures safer than in their balance sheets? previous cycles? Kaplan: “Whether and when banks Dean: “Capital structures are safer, choose to restructure should not ne of the most Where are we today in the given many deals from 2007 to the matter from the portfolio company’s respected academics in process of restructuring buy-out third quarter of 2008 had few or no perspective. If banks don’t force his field, Steven Kaplan portfolio companies and what covenants. These looser structures kicked off the Coller will be the outcome? enabled companies to be over- Institute of Private leveraged in some cases, but also OEquity’s Second Private Equity Haziza: “The amount of leverage made them more resistant to financial Symposium earlier this year with raised to fund the 2005 to 2008 default. More recent deals have been Larger GPs with fee income will be able the keynote presentation, “Private LBO vintages is unsustainable in much more conservatively capitalised. Equity: Where has it been? Where is the context of a deep recession. Since September 2008, debt to struggle for three or four years with it going?”. Kaplan is the Neubauer It’s no surprise that these vintages availability has been extremely limited. family professor of entrepreneurship are experiencing impairments. However, more recently we see some businesses that are under water. In this and finance at the University of However, there has been a pause, banks getting more aggressive.” Chicago’s Booth School of Business. reflecting lenders’ desire to keep Haziza: “The changes negotiated by sense, it is private equity that may be Drawing on his extensive research, their paper at par and we see a private equity groups have brought Kaplan pointed to financial, slowing down of the restructuring about comfortable headroom for contributing to the ‘zombification’ process governance and operational cycle. We are still early in the many portfolio companies. However, Tom dean, co-managing partner, avista capital partners engineering as key drivers of private process of deleveraging the large in the case of covenant-lite, I would equity performance, leading to clear inventory of peak-cycle LBOs.” guess that this covers only about 5% operating improvements. Kaplan Dean: “I have been on the road of deals in Europe (maybe 15% in predicted that returns on 2006 talking to investors over the past the US) and appeared only in 2007 Rise and fall and 2007 vintage funds would be nine months and it is clear they deals. The vast majority of deals in Commitments to US private equity funds as a fraction of total market capitalisation negative, LP commitments This downturn may are re-evaluating GPs, becoming trouble today have covenants. would decline, and the industry be worse, but the deal more selective, and taking a pause. “Private equity groups tend to 1.8 would contract. Most LPs recognise that recent buy stable businesses with good 1.6 Findings spoke to Kaplan, structures of 2005 to performance is terrible and the management. These generally together with Laurent Haziza, head business model, particularly for take longer to breach covenants. 1.4 of Rothschild’s private equity sponsor mega-funds relying on cheap and Eventually, covenants based on 2007 in terms of coverage 1.2 coverage, and Tom Dean, co- available debt, is broken. As for GP optimistic business plans will managing partner at US mid-market ratios and debt repayment shakeout, bigger funds will have fee breach. Until that happens, it is % 1.0 house Avista Capital Partners, to income to wait out the storm. More difficult to engage with lenders on a 0.8 get their take on where the industry schedules are less onerous susceptible are smaller, new entrant deleveraging strategy.” was heading. At the time of the funds who are performing badly now, Kaplan: “Compared with the 1980s, 0.6 discussion, markets were in motion. than in the 1980s and are without a track record.” today’s capital structures provide Despite early company busts and a Kaplan: “I would be surprised to see greater cushion and flexibility to 0.4 dearth of deal flow, buy-out funds steven kaplan, Neubauer Family Professor 50% of portfolio companies default, restructure. What many people of Entrepreneurship and Finance, 0.2 were moving quickly to access as some have suggested. We are forget is that the typical buy-out in Cath Riley Cath Booth School of Business recovering high-yield markets to not likely to see a worse outcome the late 1980s had an EBITDA to 0 refinance $500bn in debt that is up than we did in the downturn after interest ratio of 1.0 to 1.1, and the 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Illustrations: for repayment over the next five years. the late 1980s when roughly a third typical buy-out had to repay principal. SOURCE: Private Equity Analyst, Booth School of Business 6 7 Analysis “BUYING WELL, SELLING WELL

restructurings, private equity groups What will the industry look like OR MANAGING THE PORTFOLIO; will increase the value of their in five years’ time? portfolio companies; and if banks WHAT’S MORE IMPORTANT TO do, the pressure on the portfolio Kaplan: “Five years from now, the companies will still be to increase nominal returns on the 2005 to value. I expect they will do so when 2007 vintages will be poor. The VALUE CREATION?” debt principal comes due. The key big question is whether those point is that portfolio companies poor returns can beat those of the Professor Eli Talmor have going concern value and will public markets. We can expect Chairman, Coller Institute of Private Equity, London Business School keep going.” commitments to decline in 2009 Dean: “Banks are driven not to and 2010. After that, commitments weaken their balance sheets, but should come back, particularly for even when debt is seriously impaired funds that beat the public markets. and equity is wiped out there may “Private equity has an advantage be business logic not to call a loan. over many other asset classes in Instead, if banks keep private equity that the long-term duration of capital firms on a short leash, there is a matches the long-term duration of Private Equity. The Masterclass. good chance they can grow out of investments or assets. This means the problem. GPs can continue working during “In the case of portfolio the downturn to make their portfolio London Business School together with the Coller companies of large funds, banks companies better without having to Institute of Private Equity, combines the leading Equity is now may feel more comfortable if the resort to fire sales. This is a more GPs have sufficient dry powder efficient outcome than has occurred academic private equity Findings with practitioner best working for debt that can be used to add equity with hedge funds and investment practice in The Coller Institute Masterclass. and improve credit. Larger GPs banks, which were forced to with little prospect with fee income also will be able to liquidate investments at exactly the Featuring selected case studies from our impressive struggle for three or four years with wrong time.” catalogue together with well respected industry of earning a return. businesses that are under water. Haziza: “Private equity should Sponsors are In this sense, it is private equity be in good shape as it gets rid of speakers, this Masterclass will provide you with an that may be contributing to the overcapacity built up during the enhanced understanding of the ‘what, why and how’ going along with ‘zombification’ process.” credit bubble. GPs unable to return Haziza: “As long as a company capital on 2005 to 2007 vintages of private equity and the economic intuition underlying covenant re-sets for can pay its interest, banks will not will struggle to raise new funds. various market practices. The way you deal with or worry too much about the absolute Stronger GPs will resist changing manage private equity will be transformed. the equity to keep quantum of leverage and will give fee structures but will probably have the company more headroom to take to respond to LPs’ requirements its option value into account revised projections. for greater alignment of interest. Companies that are cash flow Returns will probably have to be laurent haziza, managing director, positive are finding it harder to back where they once were, i.e., rothschild delever. So you end up with a lot mid-20s, to provide a clear premium of companies that had 7x debt/ over public equities.” EBITDA when the deal was done in Dean: “We will continue to see a 2007, but now that’s become 10x large spread between the top and Leading Financial Thinking because of EBITDA contraction. If median quartile performers. Larger the business is worth 6-7x EBITDA, funds – over $10bn – will be few and the equity has no value. far between. Fees will get increased “However, a zombie can still pay scrutiny especially among larger its interest for many years until the funds. Today’s 20-30% drop in refinancing of debt becomes the performance will lead to consolidation, Next programmes: next problem. Equity is now working but with economic recovery and 24 March 2010 & 20 October 2010 for debt with little prospect of increasing returns, capital will again earning a return. Sponsors are going gravitate to the industry.” Visit www.london.edu/finance/pe/ along with covenant re-sets for the Call +44 (0)20 7000 7051 equity to keep its option value.” Email [email protected] 8 Private Equity Head to head Findings In it for the long haul? Private equity is commonly accused of asset-stripping and investing for short-term gain. New research demonstrates that this is far from the case. Fay Sanders reports.

rivate equity is often innovations in the years after a private investments, without having to consult ong-term value creation findings in Sorensen, Strömberg and top-line cost expertise and portrayed as the villain equity investment than before. They mass opinion to make quick decisions is implicit in the nature Lerner’s research. “If you consider the organisational focus. Management of the piece – stripping found that the number of times an or having the short-term shareholders of of private equity. It is volume of amounts invested, rather teams have also played their part in out jobs and selling existing patent is cited as a basis for new public companies,” explains Sorensen. an asset class that than purely the number of deals in the improving the private equity model, P off the family jewels innovation increases by 25% for those Although previous research has L requires investors to stay same 20-year period, deals up until having had significant exposure to it to line its own pockets. Yet in many issued after a private equity transaction. shown that profits rise after buy-outs, in for a considerably longer holding 2000 were in general for far smaller during the secondary buy-out boom. cases, without creating long-term “The more citations of patents already critics have said that private equity is period than hedge fund investments amounts. The larger deals after this time “They want private equity to commit to value private equity firms would fail to filed, the higher the economic cutting long-term investment to boost or companies listed on the stock were the quick flips,” explains Masek. stay on for clearly defined longer-term Morten Sorensen generate the returns they need. importance, as it shows the patents are short-term profits, says Strömberg. Yet if market, for example. IK’s portfolio is a case in point. projects,” says Masek. Chris Masek Demonstrating this is tricky. However, of a higher quality,” says Strömberg. Is this were true, private equity would cut Yet long-term strategies have not “Portfolio companies we acquired Overall, a mixture of holding on to one proxy for long-term value creation is this conclusive evidence that private all investments that only pay off several been in great evidence in recent years, through to 2000 generally had longer some companies for a short period of patent activity, say Morten Sorensen, equity is in it for the long haul? years down the road. argues Chris Masek, managing holding periods than those acquired time and others for longer is probably a Per Strömberg and Josh Lerner in their “We wanted to get to the bottom of But what about the change in the partner at IK Investment Partners. over the 2000-2005 period,” he says. healthy approach, suggests Masek. recent paper, Private Equity and Long- whether they are evil buyers, intent on market since the financial crisis hit? How “From 2003 to 2007 the lifespan of Today, the pendulum has swung “There needs to be a balance of Run Investment: The case of innovation ripping a company to shreds, stripping has that impacted private equity’s taste investments shortened, because of back the other way. Private equity has returning money to LPs quickly as well (2008). Together, they have examined out value and firing people, only to sell it for value creation over the long term? the increase in the number of players to invest for a good reason and won’t be as preserving GPs’ hope for earning patent citations and found that back to unsuspecting investors; or The authors believe that private equity in the market, the correlated able to profit from money multiple carried interest. This balance will create Per Strömberg companies pursued more influential whether they sought to make long-term has a strong story to tell. development of a secondary market arbitrage or deleveraging programmes, portfolios where certain assets can be An interesting avenue to follow in and, most importantly, the increase in says Masek. “Rather than clever held for longer periods.” today’s market would be to examine how leverage multiples,” he says. financing, the only option is value The research badly a particular sector gets hit, Initially, private equity was based creation through fundamental change, depending on how many private equity primarily on money multiples with however clichéd this may sound.” Patents are a useful measure of patent portfolios of 495 companies suggests that private equity firms firms are investing in that sector, investors willing to support longer-term Ironically, the main driver for value long-term investment in a company, that received private equity backing are prepared to invest in better- suggests Strömberg. “It could show how investment structures. “With quick creation is the lack of debt availability, allowing researchers to track the between 1980 and 2007. quality and potentially long-term private equity can boost the economy, if flips, focus shifted to IRRs as funds hence the need to put more in place to amount, intensity and type of R&D In addition to finding that private innovations. They also found that it can reduce the severity of cycles.” were achieving 20-30% returns as help the company work. “In its early Rather than clever expenditure. The authors use patent equity-backed companies’ patent the patents that increase most after The research suggests that private standard,” says Masek, pointing out days, private equity focused on M&A financing, the only citations as a measure of economic citations increase by 25% following private equity involvement are those equity serves a valuable role in the that the IRR decreases significantly dynamics such as buying low, selling importance (a patent is cited when the private equity investment, the related to the core business. They are financial markets, if investors are over a longer period of time. High high, disposing of non-core assets as option is value there is a subsequent patent that researchers also discovered that also the patents of higher quality, dedicated to long-term investment. So hurdle rates also discouraged GPs from well as buy and build. Private equity also builds on it – it’s a sign that the the patents applied for three years suggesting that private equity- says Sorensen, who alludes to plans to holding on to certain companies for too focused on balance sheet improvement creation through patent is used in a succeeding after the buy-out garner 78.6% backed companies focus more on regulate private equity firms. “Authorities long so they didn’t scupper their through working capital and financial James Carey James innovation). The research focuses on more citations than those applied core technologies, allowing them to should be careful when regulating chances of receiving carried interest. engineering,” says Masek. fundamental change the quality, size and structure of the for in the year of transaction. This produce higher impact patents. private equity too much or imposing Yet the spate of quick flips witnessed Since then, private equity has vastly chris masek tight restrictions on the way it operates.” Illustrations: in the market doesn’t contradict the raised its game in terms of operational

Per Strömberg is the director of the Stockholm Institute for Financial Chris Masek is managing partner at IK Investment Partners. He joined Research and professor of finance at the Stockholm School of Economics. the firm in 2000 and is a member of the executive committee, jointly Morten Sorensen is professor of finance and economics at Columbia responsible for investments in France, Germany and Benelux. Before IK, he Business School. was a founding partner of KPMG Corporate Finance in France and holds an MA in international economics from Yale University.

10 11 Private Equity Roundtable Findings

ne of private equity’s key outside directors is lower, that CEO turnover is management representation may advantages is that it concentrates much higher in the period following a buy-out, be lower, the balance is still more ownership of companies in the and that the higher the involvement of private weighted to insiders than it would be hands of a few key shareholders. equity investors in the early stages of a deal, A few people who have really done their in a public company.” This clearly has a large impact on the higher the alpha and the better the margin homework are able to reach agreement far Othe way in which the company boards are put growth of the company. The overall conclusion What are the strengths of together and therefore function. Three recent is that private equity investors are willing and more easily than a crowd. You can definitely that model? pieces of research (see box on page 15) delve able to engage with their portfolio companies into the composition and modus operandi of at board level and that they are much more have too many people around a board table Taylor: “Public company boards have private equity-backed company boards and able to create boards that can make changes to spend a lot of time considering what find that they tend to be smaller than public in a timely and efficient manner than public professor Francesca cornelli, london business school the City is going to think about the company boards (and therefore able to reach companies. Corporate governance is one of decisions they make. By definition our decisions more quickly), that the number of private equity’s key tools in value creation. boards don’t, because the shareholders are there around the table. We also don’t have to report half yearly or How does board composition and their advisers. And the evidence quarterly for most of our companies, differ in a private equity-backed is that small boards work better. A which are below the Walker threshold, company from that in a few people who have really done so there isn’t that sense of focus on public company? their homework are able to reach the short term that is still prevalent in agreement far more easily than a public company boards.” The perfect board Cornelli: “Private equity boards tend crowd. You can definitely have too to be smaller. Very often in public many people around a board table.” What is the ideal board It’s long been said that boards in private equity-backed companies can be more companies a lot of management Acharya: “A private equity board composition? effective than those in public companies. Now three studies show why. We get involved – it’s not only the typically has seven to eight CEO and CFO, it’s the marketing members, whereas a similar size Lochery: “I like a board of seven: a discussed corporate governance with two of the authors, two general partners and a man, and it is also the lower-level company in the public space might non-exec chairman, two people from managers. With a private equity have 10 to 12. And non-execs on a the private equity house and then non-executive chairman to gather their views. Chaired by Amy Carroll board you get the CEO, the CFO, private equity board are incentivised four execs – the CEO, the CFO, and the private equity representatives and behave like insiders, so while two or possibly three others.” Taylor: “Boards shouldn’t become too big if you want to make decisions Roundtable participants quickly. Typically, we would expect the board to include the CEO and FD, and Professor maybe one or two other execs. The Professor danger is that if you allow too many Viral Acharya Francesca Cornelli Tony Lochery execs, you need more non-execs to Stern School of London Business School, Peter Taylor Business, New York Coller Institute of serial non-exec Vince O’Brien balance it up. A non-exec chairman University Private Equity chairman Montagu Private Equity Duke Street Capital is very important – we usually employ one of our own operating partners Acharya is a professor of Cornelli is a professor of Lochery built his own company O’Brien is a director at Taylor is managing partner – and at least one if not two direct finance at the Stern School of finance at the London over a 12-year period before Montagu, having joined the of Duke Street, having joined shareholder representatives from the Business, having joined in Business School and selling it to Kwik Fit, where he firm in 1993 from Coopers & the firm from Vardon in investment team.” 2008. He was previously academic director of the joined the board as group Lybrand. A graduate in modern 1996. A specialist in the professor of finance and Coller Institute of Private managing director. He later history and a qualified leisure, retail and consumer What happens when there academic director of the Equity. She is a research became chief executive of City chartered accountant, he has sectors, he has worked on are multiple private equity Coller Institute of Private fellow of the Centre for Holdings, a privately owned more than 20 years of private numerous deals, including firms involved? Equity, a research affiliate of Economic Policy Research, facilities management group, equity experience and sits on Oasis and Sporting Index. He the Centre for Economic an associate editor of the before taking on a number of Montagu’s investment was also responsible for Cornelli: “If there are several private Policy Research and an Journal of Finance and a chairmanships. He has worked committee. O’Brien is also a creating and integrating equity sponsors, each will insist on academic adviser to the member of the Royal with CBPE Capital, BoSIF and former chairman of the British Duke Street’s operating board representation because they Bank of England. Economic Society. Gresham Private Equity. Venture Capital Association. partner programme. want control over their interests. 12 13 Private Equity Roundtable Findings

That potentially makes things more they could be voluntary – a board So to summarise, what are the The research complicated, but having more private may decide to bring someone in distinguishing characteristics equity representatives on a board My own experience is that, in the private with working capital management of the corporate governance The starting point for Corporate that private equity boards led doesn’t necessarily make it larger. experience, for example.” approach to private equity and Governance and Value Creation: strategy formulation, whereas in It is more likely that the number of equity world, a non-exec who isn’t a Acharya: “I don’t know if private what are the strengths and Evidence from private equity public companies, 70% described managers will be reduced, suggesting equity board composition changes in weaknesses of that model? (2009) by Viral Acharya, Coller the board as “accompanying” that controlling size is imperative.” shareholder is just a nuisance a recession but priorities certainly do. Institute of Private Equity and and 30% as “following” company Board focus will be heavily directed Acharya: “The private equity model Stern School of Business, Moritz strategy. Private equity boards The research suggests that tony lochery, serial non-exec chairman towards renegotiating financing and of governance has three key features: Hahn, Ludwig-Maximillians- are also much smaller and more private equity-backed company that means the skills required will it is an active form of governance, University and Conor Kehoe, focused than public company boards “lead management be different. I would also say that it is a highly incentivised form of McKinsey & Co., was the extent boards, the research found. strategy” whereas public private equity firms that prove able governance, and it is an empowered to which private equity firms are Private equity boards had seven company boards “accompany is more challenging. The private Does board composition to survive this nuclear winter will be form of corporate governance. Each able to generate “abnormal” to eight members, while FTSE management strategy”. Is that a equity investor usually won’t want change over the life cycle of those that are hands-on at a board of these is a strong advantage.” performance (or alpha) compared 100 boards had an average size fair reflection? to interfere in the nitty-gritty of an investment? level, and genuinely skilled at turning Cornelli: “But I would add that it is with quoted companies. After of 11.7 in 2007 and FTSE 350 the business, but will get heavily companies around.” not enough just to give managers stripping out the effects of boards, 10. Time allocation by O’Brien: “Yes, because if the engaged if required.” Cornelli: “The level of private equity some equity and then to sit back leverage and/or market multiple non-executive directors also varied shareholders in a private equity-backed representation tends to fall over What about the longer-term and claim that everyone is aligned increase, they found that, based widely, with 15 to 20 days a year business want to change strategy they What role should outside time. We also sometimes see more implications of the current and therefore the corporate on their sample of 66 UK deals spent by both in formal meetings, can effect that through the board very non-execs play in a private senior people substituted by junior financial crisis? Will corporate governance model is superior. You initiated between 1997 and but 35 to 40 days spent by quickly. The board is therefore a much equity-backed board? people. Then, if an exit is proving governance philosophies have have to be hands-on.” 2004 of more than €100m in non-execs in informal discussions more dynamic part of the machinery.” tricky for any reason, that may be to be revisited in the light of Lochery: “When a business is enterprise value, private equity with management among private Lochery: “The amount of time spent Lochery: “Because there is an reversed and board representation what has happened over the going well, private equity boards generated an out-performance equity non-executives, and only on monitoring in a public company almost undiluted focus on value may suddenly increase again.” past two years? are great because there is a unity in returns of over 8% a year. three to five days among public board meeting is greater than in a generation in a private equity- Taylor: “The board tends to expand of purpose which means they are They then took several governance company directors. private equity-backed business, but in backed board, as opposed to, over time. You start small and then Taylor: “It’s going to take a long time flexible, dynamic and primed for fast scores, such as size of board, Private Equity and Corporate terms of who leads the strategy, it’s all for example, compliance, there grow as you need to move to the for debt levels to recover, which will decision-making, and that is exactly time spent in the company and Governance: Do LBOs have more down to the personalities in the room.” tends to be less of a role for non- next phase of development. As mean more equity in the mix. There the situation that people like me extent of management change, effective boards? (2008) by Acharya: “Many private equity deals shareholding non-execs. In the you move closer to exit, you also is a lot of misunderstanding about want to find themselves in. However, cross-referencing them against Francesca Cornelli and Oguzhan have a significant operational angle, public arena, you may be looking sometimes need to show some kind covenant-lite loans at the peak of when a business is not going well, the sample of deals. The top Karakas, London Business School, so the value creation plan has to for all sorts of technical expertise of succession planning. Sometimes market. They only really affected all of those positives can become tercile by alpha had a higher looks at the changes in the boards be attacked straight away and that in a non-exec – remuneration we change the investment very large buy-outs and only lasted negatives, because once the equity active ownership score than of UK public companies which needs heavy board involvement. By committees, nomination committees representative on the board. I have for a very short time. In the mid starts going under water, interests the average deal. The scores were taken private by private contrast, many public companies and so on. My own experience is personally handed over a number cap, buy-out debt structures are very quickly start to get misaligned.” for ‘management support’ and equity groups and compares are on autopilot, which means the that, in the private equity world, a of board positions after two or three complex and restrictive, far more so O’Brien: “The strengths of the ‘employing external support’ them to companies that remained board is not as involved and tends to non-exec who isn’t a shareholder is years in order to get some fresh than in publics. If debt levels are to private equity model are speed emerged as particularly high for public over the same period. It be less clued-up on the business.” just a nuisance.” blood in the mix and fresh eyes on come down close to public levels, of decision-making and goal these deals. found that when the company O’Brien: “If we use non-execs, they the case.” we should be trying to push back congruence. I guess the weaknesses Private Equity vs PLC Boards: went private the board became What does the private equity tend to be hands-on with relevant on some of the complexities that – and there aren’t many – are that A comparison of practices and 15% smaller and that private firm bring to the table? industry experience. The days of Does the approach to board go with buy-out debt. That may be it can lend itself to over-dominant effectiveness (2008) by Viral equity representatives accounted private equity houses having pools composition differ in a wishful thinking, but if it happened financial investors who may think Acharya, Conor Kehoe and for 39% of the board. It also found Lochery: “The individuals come of non-execs acting across different recessionary environment such it would make a big difference they know how to run a company Michael Reyner, MWM Consulting, that private equity representation with their own skills and personality, sectors are gone. Today, you should as the one we are currently because one of the disadvantages of better than a management team.” also finds that private equity is larger, the more complex and together with a house brand and a either bring in a director who is experiencing? private equity governance is that a Taylor: “The key advantage is speed boards are more effective than difficult the deal. In particular, great deal of process experience, an executive and who is needed lot of a board’s time is spent working of decision-making, because the public company ones. Based on LBOs in which the CEO was which is invaluable, particularly because he is a great branding man, Lochery: “If you have a through a labyrinth of covenants.” shareholder is there at the table. interviews with 20 executives with changed have larger private when approaching exit. Most or a great manufacturing man, for management team that has never Acharya: “We may well start This is more evident now than experience of both private equity- equity representation, higher CEO management teams have never been example, or you bring in an active been through a distressed situation seeing a culture of higher equity ever before. The crisis has forced backed and public company turnover after the LBO but also through an exit process before.” chairman. Private equity houses before – which is the majority of investment, or even minority stake companies to make decisions boards in the UK, it found that better operating performance, O’Brien: “The private equity today are much more active portfolio management teams today – changes investment, and that will have an quickly and if you don’t have a 75% believed private equity indicating that private equity’s investor’s role is facilitating strong managers and don’t delegate the to board composition may need impact on board composition and governance regime that can deal boards were “clearly superior in direct involvement and monitoring management. If all is going well, responsibility for monitoring their to take place. These could be the way in which private equity uses with rapid decision-making, then you the value they added”. They found pays off. that is easy. If not, the situation investments to outside non-execs.” forced on a company by a bank or its board representation.” have a real problem.” 14 15 Private Equity Findings

Sir Ronald It’s all about Cohen the brand One of the key elements in many private equity firms’ success in recent years has been securing debt at favourable rates, Susan Flynn with the best-known names ahead of

the pack. The financial crisis may have Christopher James Mario changed all this. Where does that leave Giannini the biggest brands? By Kimberly Romaine.

hat makes a private equity firm successful over the long term? And what makes one firm more successful than another? There are clearly a What’s in a name? number of factors, but a group’s Wreputation or brand is a key element. “A brand Getting to the heart of what constitutes that some of the most reputable are creates a differential between firms,” says private a ‘reputable’ buy-out house is fraught Carlyle Group, Blackstone Group, KKR, equity veteran and co-founder of Apax Partners Sir with difficulties. Past studies have TPG, Bain Capital, Goldman Sachs Ronald Cohen. “Out of two with equal performance, attempted to do so using number Capital and – prior to 2001 – Chase one will fare better in the minds of investors if it of previous fundraisings, assets Capital Group. has a better brand.” The four metrics of a brand, under management and number of Overall, the median private equity Loyalty and commitment with the long view. according to Cohen, are the ability to attract funds, recent transactions. Yet each of these group in the sample of 180: has 12 transactions, people and bank finance. measures is problematic. years’ experience; has invested in And it’s the interplay between reputation and the As a result, James and Demiroglu 10 LBOs since 1980; has less than a latter item on Cohen’s list – debt – that is the subject chose several measures. Three 1% market share; and $3.6bn under of research by Christopher M. James and Cem are based on the number of deals management. By contrast, the median Demiroglu. The authors set out to discover whether a completed, including whether a group in the 90th percentile: has firm’s reputation affected the financing structure in private equity group was one of invested in 41 deals since 1980; has its leveraged buy-outs in their recent paper The Role the top 25 by deal number over the an 8.2% market share based on deals Sam Kerr Sam of PE Group Reputation in LBO Financing (2009). previous 36 months, by LBO market in the previous 36 months; and $40bn www.mvision.com Taking a sample of 180 US public to privates1, the share and age of the firm. They found under management.

Illustration: authors found that the most reputable groups paid

1 The research was conducted using a sample of 180 US public to private LBOs completed between 1997 and 2000 with a total value of $290bn, or 81% of the total value of the public to private transactions listed in Securities Data Company’s M&A database. The median buy-out value of the sample is $408.1m.

17 Private Equity Beyond the abstract Findings

narrower bank and institutional loan $455bn – had yet to be repaid. Changes in LBO capital structure expensive for them to walk away from spreads, had longer loan maturities Times like these will And, as the authors suggest, “Buy- the big guys, since even a top- and used less traditional bank debt outs of reputable private equity groups “Traditional” LBO capital structure “New” LBO capital structure performing $1bn fund cannot produce and more institutional credit than the yield succession issues are on average more highly levered, such fees for banks,” says Giannini. less reputable firms. They found not which increases the sensitivity of these Yet this is not just to do with the fact only that reputable groups were more as individuals are blamed deals to changes in credit market that these firms are more active and do likely to take advantage of market conditions.” So is this a ticking time 15% 10% larger deals, argue the authors. They timing in credit markets because of bomb that could make some of the found that the more reputable the firm, for failures and leave % their ability to attract funding, but that more reputable private equity houses 30 the less likely their portfolio companies their reputation afforded them better sir ronald cohen, co-founder, less attractive to work with? “If there is a 35% were to enter financial distress in the five overall terms from lenders – they were apax partners slew of high-profile bankruptcies, then years after the LBO. This is either able to attract more and cheaper debt firms may say: ‘Do I want to be because private equity firms place because lenders perceived the associated with a firm tied to such 25% 35% enough value on the preferential terms companies backed by them as lower debt that has been piled into deals over public failures and court cases?’” says they are able to secure to ensure that risk credits. These are key competitive recent years. Long deemed the key to Mario Giannini, CEO of Hamilton Lane. they honour their debt obligations or advantages during the good times. enhancing returns, leverage may now Team instability may also damage because they actually make less risky prove an industry weakness. reputations and create doubt in the 20% investments than others (as lenders Good times no more? Between 2006 and 2007 ‘favourable minds of those working with firms, appear to believe).2 % Indeed, the paper was produced using terms’ were often synonymous with a including lenders. “Now, after the 25% 5 This is backed up by the authors’ samples before the credit crisis. Now, lack of covenants (see graph below), credit crunch, we must worry about the findings from the secondary debt there are predictions of a mass shake- which can postpone or even eradicate continuity of teams,” says Cohen. market. “If you use pricing in the Equity Unsecured / First-lien term Second-lien term Secured bank out in private equity, with some of the any early warning signs of companies “Times like these will yield succession Mezzanine / debt covenant-lite bank debt revolver secondary loan markets,” says James, best-known names among the in distress. Standard & Poor’s LCD issues as individuals are blamed for Bridge “you see that again the reputable firms casualties. What were once the most estimates that up to $25bn of private failures and leave. The past success The figure shows the capital structure of representative ‘traditional’ (2004 and before) versus ‘new’ (2005-07) LBOs come out trumps, seeing on average a reputable groups may no longer be so. equity-backed debt in the US is due in and track record of a team is no longer SOURCE: The Role of Private Equity Group Reputation in LBO Financing (2009) 15% discount on B-tranches, against What effect will this have on their the next two years, with this number enough to make a judgement. How the deeper discounts of around 25% for ability to attract debt finance at all, let rising sharply to over $200bn by 2014. firm’s organisation will fare going loans on deals backed by less alone on some of the best terms? As of August this year, 91% of the forward becomes a key issue.” high-profile and heavily leveraged reputable firms. This indicates that the The main issue here is the wall of overall institutional loan market – or We’ve already seen a number of deals, Kohlberg Kravis Roberts (KKR) market perceives those backed by the departures from the top of some of has indicated it will divert excess cash There will indeed be a larger players as being more likely to private equity’s enduring names. flow towards buying in that debt. flight to quality – but be paid back – or at the very least average number of financial Damon Buffini is stepping down from In addition to finding ways to salvage shows that they are not any worse off.” his chairman’s role at Permira, portfolio companies saddled with that doesn’t necessarily maintenance covenants by year Candover’s Colin Buffin has left, Philip onerous leverage, KKR is also LP views 5 Yea was ousted from his chief executive diversifying its own revenue streams. mean large brands. Yet while banks and credit investors post at 3i in early 2009 and Guy Hands Rather than benefit purely from equity may be happy to continue with the 4.5 is no longer chief executive of Terra upside on exiting its companies, it is The strategy of large, firms that have historically been the 4 Firma. And, in one of the most public now mulling over ways in which to earn most reputable, limited partners may displays of acrimony, Jon Moulton fees for doing so – traditionally the remit core relationships has be taking a different view, a factor that 3.5 stormed out of Alchemy Partners, of the banks hired to do such tasks. could well affect the previously more

3 blaming irreconcilable differences with Most recently, it has plans to underwrite come unstuck reputable groups’ ability to take his heir apparent Dominic Slade, and the IPO of one of its own businesses. advantage of credit market conditions. 2.5 wrote to investors saying that he had no Though KKR may be seen to be suSAN flynn, director, Many LPs have been burned by a hermes private equity confidence in Slade’s abilities to run the nibbling the hand that feeds it, it is distinct lack of distributions and are 2 firm. He suggested it be wound up. unlikely to see an erosion of favourable facing losses in parts of their portfolios. 1.5 Yet many believe that even if some treatment from banks; they count the Meanwhile, in an attempt to of private equity’s best-known names top private equity groups among their increase revenue streams, buy-out 1 have tripped up in recent times, the largest clients. “Banks have a good houses are increasingly diversifying 0.5 damage will not be permanent for the history with reputable groups and trust across a range of areas. From regional most part and their reputations will them. If you have a $15bn fund, you funds in emerging markets to 0 survive. The most established firms are the banks’ largest customer. A infrastructure vehicles and debt funds, 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 generally have the experience to adapt swathe of massive bankruptcies that few remain purely in the LBO space. LBO Firm Loans All Other ‘B’ Rated Firm Loans to continue to succeed. Faced with leave banks out of pocket could Some see this as a cause for concern. SOURCE: The Role of Private Equity Group Reputation in LBO Financing looming maturities on a number of change all this. But as now, it’s too “GPs should focus on their portfolio, 18 19 Beyond the abstract

Key findings When the markets pick up, the l In summary the authors, Christopher M. James and Cem Demiroglu, found that overall lower credit institutional [debt] investors will spreads (35bps for top 25), lower amounts of bank debt (9.6% for the top 25), higher amounts wish to move forward with the of institutional debt, increased leverage (13% for top 25) and longer maturities of traditional bank more reputable houses again debt (8-10 months for top 25) are all linked to the christopher m. james, university of florida reputation of private equity groups. The reputation or covenanted bank debt of private equity groups are proxy substitutes to direct monitoring.

l Some aspects are external to reputation. While not set up new products all the time on to grow, albeit with a different reputable private equity groups are more active the back of a brand,” says Susan investor base.” when credit conditions are more lax, there is no link Flynn, director at Hermes Private between reputation and lighter covenants. That is Equity, which invests BT’s pension Plus ça change a market not a reputation phenomenon. scheme. “They are becoming financial Reputable groups will continue to management fee franchises. There will receive more favourable terms than l There is no link between enterprise value/ indeed be a flight to quality – but that others, but the differential will narrow, EBITDA multiples and reputation, but reputable doesn’t necessarily mean large particularly on leverage pricing. “Deals private equity groups buy companies that have less brands. The strategy of large, core done in 2005-2007 were frothy – there volatile operating margins. The benefits of lower relationships has come unstuck.” was aggressive competition among financing cost and higher leverage are retained Success in one space does not institutional investors for deals and so by them. guarantee a repeat performance spreads were too low,” explains James. elsewhere. “We know certain industry “It was mispriced risk, and the large l The relationship between reputation and ex veterans are great buy-out chiefs. But buy-out houses were the beneficiaries post LBO performance remains preliminary, but are the people running the buy-out of that. Those days are gone for a while. for top 25 private equity groups it is significant, house able to run a big But when the markets pick up, those corroborating the idea either that the value derived conglomerate?” asks Giannini. “We as same institutional investors that lent to from reputation is an incentive to honour their investors need to ask ‘is this the same them will wish to move forward with the obligations or the top 25 private equity groups firm we were keen to back years ago? more reputable houses again.” have better investment and monitoring abilities. Who’s running the show now?’” But while most reputable groups Yet these doubts don’t necessarily look set to retain their competitive mean that we’ll see the fall of some of advantage, some will fall by the the biggest names in private equity. wayside. Despite the apparent Some LPs may think twice about persistence of returns among the top re-upping with their fund managers, quartile group, there is always some but new ones will fill the gap. natural wastage. “Every hurdle sees a “Sovereign wealth funds have a lot of few teams fall,” says Cohen. “It will liquidity, whereas endowments are always be so. Those who make it more capital constrained,” says over the hurdle will gain in terms of Cohen. “The industry will continue brand recognition.”

2 There are a number of caveats to these findings: the deals in the last Professor Christopher James holds the William H Dial/Sunbank Eminient few years of the sample are not yet mature enough to have entered distress; Scholar Chair in Finance and Economics at the University of Florida. He loose covenants and bullet structures make defaults less likely for 2006 currently serves as an adviser to the Federal Reserve Bank of San Francisco and 2007 deals; and the extraordinary events in 2008/2009 in the credit and as a senior adviser to Cornerstone Research. markets may mean that recent deals depart from long-term trends.

20 Private Equity Coller Institute of Private Equity News Findings

innovative solution – the private equity hybrid/reverse convertible – a means UPCOMING EVENTS by which investors can adjust the risk/ return profile of an initial investment ● Annual MVision Roundtable: Coller Prize 2009 through the use of embedded options. Critical Success Factors to the Future We received a huge variety of high-quality submissions for this Thank you to all the students who Performance of Private Equity Firms submitted their papers for Date: 25 November 2009 year’s competition. Here are the winners. consideration and to Katharine Start: 19:15 Campbell of Cambridge Associates for Location: London Business School her commitment and enthusiasm in Panellists: Juan Delgado-Moreira, Hamilton Lane e are delighted to Dean of London Business School, Sir helping us make the final decision. Michael Phillips, Apax Partners announce the winners Andrew Likierman, the students had an For more information on the event or Professor Michael G. Jacobides, London of the Annual Coller opportunity to present a synopsis of submissions, please contact collerpe@ Business School Prize for Private Equity their papers at a prize-giving event in london.edu. Moderator: Professor Francesca Cornelli, 2009. Jo Coles and October. The prizes were awarded by Coller Institute of Private Equity WVijay Sachidanand (SEMBA 2009) Jeremy Coller. New PhD Prize won the best case study category The best case study, Realza Capital, For 2010 we have decided to create a The past 18 months have exposed the private and Chris Berkhoff and Nico Straub covers several pedagogical topics from new category and an additional prize equity model to immense stress both at the (MIFF 2009) have been awarded best both the GP and LP perspective. Case for the best work on a topic related to portfolio level and within partnerships themselves. management report. Each receive A examines the GP’s decision and private equity and venture capital Is a model built on alignment best suited for a cheque for £750 and a trophy to motivation for establishing a fund and authored solely by PhD students, either dealing with the market and management commemorate their success. focuses on their track record, working alone or as part of a PhD dislocations, and can it evolve? The evening The runners-up for the best case reputations and investment thesis. Case group. This prize is open to all current will highlight some of the factors as to why and study were Richard Harvey and Geoff B introduces the role of a placement PhD students and those completing how some GPs have been able to deal with these Leffek (DLEMBA 2009) and for best agent in the funding cycle and how a their doctorates in 2010 and is not stresses better than others. management report Akram Alami, Shelby roadshow is crafted and executed. confined to those studying at London The management of investments, investors Morgan and Sinan Yircali (MBA 2009). The best management report Business School. and other stakeholders is an obvious critical The prize dates back to 2004, when focused on the current limited access to The winner will receive US $5,000 component to continued performance but other the Institute was established. The prize debt capital of both mid-sized German from Jeremy Coller, CIO of Coller factors go beyond pure finance and investment was open to all Master’s students companies and private equity firms. It Capital, at the Annual Coller Prize philosophy to encompass the wider horizons of graduating in 2009 and this year, looked at the conflict between Evening held at the School in autumn long-term strategy, general management and because of the variety of papers companies not wishing to relinquish 2010 and will have an opportunity to succession of the partnership. We believe this submitted, we decided to award two control in return for capital and private present a synopsis of their paper to the year’s topic is of considerable relevance to many prizes, one for the best case study and equity firms needing to achieve an assembled audience. For full details on and will encourage a keen debate among the panel one for the best management report. appropriate risk profile and return for a eligibility and deadlines, please contact and audience. Following welcoming remarks from the minority interest. It presented an [email protected]. ● Barclays Wealth Private Equity Evening Date: January 2010 Symposium 2009 Location: London Business School

At a time when the global economy and private Business (points from which are featured on pages their relationships with general partners; and Day two included discussion of the of Business; Sovereign Wealth Funds: Their ● Private Equity Findings 2010 Symposium: equity were in a state of flux, our Second Academic 6-8), Liam Strong, partner at Cerberus, made the the extent to which general partners are having following papers: The Investment Behaviour investment strategies and performance, THE PRIVATE EQUITY CONTRACT – EVOLUTION Private Equity Symposium, Private Equity at the second keynote speech in which he presented the to change their approach and style in response of Buyout Funds: Theory and evidence, presented by Luc Laeven, International OR REVOLUTION? Crossroads: A vintage of crises and opportunities, difficulties involved in debt restructurings, given to portfolio companies in crisis. presented by Matthew Richardson, NYU Stern; Monetary Fund; and Risk and Return of Dates: 12 and 13 May 2010 brought together leading academics and the involvement of central banks at many of the Antoinette Schoar, MIT Sloan School of Information Spillovers and Performance Infrequently Traded Assets: A Bayesian Location: London Business School practitioners to discuss key practical issues and lending institutions. Management, gave the third keynote address Persistence in Private Equity Partnerships, selection model of venture capital, presented We are pleased to announce that Josh Lerner, Jacob recent thought-provoking research papers. The panel discussions centred on the lack of on The Dynamics of Private Equity Returns. The presented by Vincent Glode, Carnegie Mellon by Morten Sorensen, Columbia University. H. Schiff professor of at Harvard Day one was devoted to keynote speeches completed secondary sales caused by the wide bid- day was rounded off with a dinner at which University; Private Equity Buyouts, Leverage The other papers presented, on corporate Business School, will be joining the event this year and day two was dedicated to presentations and offer spread, and the degree to which improving turnaround veteran Wilbur L. Ross spoke about and Failure, which Mike Wright, Nottingham governance (Cornelli) and reputation as keynote speaker. Details to be announced shortly. critiques of leading papers by academics. market conditions may stall the wave of distressed the importance of picking good management University Business School, set out; Private (James), are featured in this issue of Private Following the first keynote speech from Steven sellers that had been predicted in late 2008; the teams and making the right decisions in Equity and Employment, explained by Steven Equity Findings on pages 12-15 and pages To learn more about these events, please iStock Kaplan, University of Chicago Booth School of need for limited partners to become more active in distressed environments. J. Davis, University of Chicago Booth School 17-20, respectively. contact [email protected]. Illustration: 22 23 Coller Institute of Private Equity London Business School | Regent’s Park London NW1 4SA | United Kingdom

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