k Trim Size: 170mm x 244mm Demaria537380 ffirs01.tex V1 - 03/21/2020 2:20pm Page i Introduction to Private Equity, Debt and Real Assets k k k k Trim Size: 170mm x 244mm Demaria537380 ffirs01.tex V1 - 03/21/2020 2:20pm Page ii Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Australia and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers’ professional and personal knowledge and understanding. The Wiley Finance series contains books written specifically for finance and investment professionals as well as sophisticated individual investors and their finan- cial advisors. Book topics range from portfolio management to e-commerce, risk management, financial engineering, valuation and financial instrument analysis, aswell as much more. For a list of available titles, visit our website at www.WileyFinance.com. k k k k Trim Size: 170mm x 244mm Demaria537380 ffirs01.tex V1 - 03/21/2020 2:20pm Page iii Introduction to Private Equity, Debt and Real Assets From Venture Capital to LBO, Senior to Distressed Debt, Immaterial to Fixed Assets k Third Edition k CYRIL DEMARIA k k Trim Size: 170mm x 244mm Demaria537380 ffirs01.tex V1 - 03/21/2020 2:20pm Page iv This edition first published 2020 © 2020 John Wiley & Sons Ltd. Registered office John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, United Kingdom For details of our global editorial offices, for customer services and for information about how to apply for permission to reuse the copyright material in this book please see our website at www.wiley.com. All rights reserved. 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Other titles: Introduction to private equity Description: Third edition. | Hoboken : John Wiley & Sons, 2020. | Includes bibliographical references and index. Identifiers: LCCN 2020004378 (print) | LCCN 2020004379 (ebook) |ISBN 9781119537380 (hardback) | ISBN 9781119537410 (adobe pdf) | ISBN 9781119537373 (epub) Subjects: LCSH: Private equity. Classification: LCC HG4751 .D46 2020 (print) | LCC HG4751 (ebook) |DDC 332.6—dc23 LC record available at https://lccn.loc.gov/2020004378 LC ebook record available at https://lccn.loc.gov/2020004379 Cover Design: Wiley Cover Image: © oxygen/Getty Images Set in 10/12pt SabonLTStd by SPi Global, Chennai, India Printed in Great Britain by CPI Antony Rowe, UK 10987654321 k k Trim Size: 170mm x 244mm Demaria537380 ffirs01.tex V1 - 03/21/2020 2:20pm Page v John Donne wrote that ‘No man is an island entire of itself’. I am indebted to my family and my friends for their constant support, their kindness and their gentle nudges. This book is dedicated to them. k k k k Trim Size: 170mm x 244mm Demaria537380 ftoc.tex V1 - 03/20/2020 8:05am Page vii Contents Acknowledgements ix About the Author xi Introduction 1 PART I What are Private Equity, Private Debt and Private Real Assets? CHAPTER 1 Private Equity as an Economic Driver: An Historical Perspective 15 k CHAPTER 2 k Modern Private Equity – A French Invention? 39 PART II The Private Markets Ecosystem CHAPTER 3 Private Markets: A Business System Perspective 85 CHAPTER 4 The Universe of Investment 145 CHAPTER 5 The Process of Investment: A Matter of Trust and Mutual Interest 245 PART III Private Markets in Teenage Time: Trend Setting, Fads and Responsibilities CHAPTER 6 Private Markets Evolution: Trends or Buzzes? 267 vii k k Trim Size: 170mm x 244mm Demaria537380 ftoc.tex V1 - 03/20/2020 8:05am Page viii viii CONTENTS CHAPTER 7 Private Equity and Ethics: A Culture Clash 287 CHAPTER 8 General Conclusion: Private Markets Today and Tomorrow 309 Template 1 (Fund): Architecture of the Private Placement Memorandum of a Private Equity Fund 329 Template 2 (Fund): Structure of a Limited Partnership Agreement 331 Template 3 (Fund): Due Diligence Checklist 335 Template 4 (Fund): Quarterly Report Template 339 Template 5 (Company): Non-Disclosure Agreement 343 Template 6 (Company): Business Plan 347 Template 7 (Company): Term Sheet 353 k Business Case: Kroton Educacional SA – A Private Equity k Operation Can Hide Another One 363 Exhibits 379 Glossary 389 Bibliography 425 Index 439 k k Trim Size: 170mm x 244mm Demaria537380 flast01.tex V1 - 03/20/2020 8:05am Page ix Acknowledgements thank Sarah Debrand for her kind assistance in helping me put this new edition Itogether. Her inputs, patience, kindness and reactivity were very much of help. Thank you. I also thank the Emerging Markets Private Equity Association, and specifically Jeff Schlapinski and Sabrina Katz, for kindly providing me with crucial data. k k ix k k Trim Size: 170mm x 244mm Demaria537380 flast01.tex V1 - 03/20/2020 8:05am Page xi About the Author ince 2017, Cyril Demaria has been a Partner and Head of Private Markets at Weller- Sshoff & Partners, in Zurich. The company is an independent research and advice company to institutional investors and family offices. He is also the General Partner and President of Pilot Fish, created in 2009, which manages a series of venture cap- ital funds for family offices and high net worth individuals. Prior to his current role, Cyril Demaria was in charge of private markets research at the Chief Investment Office of UBS Wealth Management from 2014 to 2016. From 2009 to 2012, he co-founded and was Partner and Chief Investment Officer at Tiaré Investment Management AG, a Zürich-based wealth and investment management company. Prior to that, he cre- ated a multi-strategy fund of funds focused on environmental matters. He was also an Associate in private equity funds of funds, a Portfolio Manager responsible for private equity fund investments at a French insurance group where he managed 27 investments totalling EUR 60 million in private equity funds and funds of funds. As Head of Cor- k porate Development at Externall (Paris), he managed four asset acquisitions and raised k debt financing. He started his career in a hybrid venture capital and fund of fundsfirm (San Francisco, Paris). A French and Swiss citizen, Cyril Demaria holds a BA in Political Sciences from the Institut d’Etudes Politiques (Lyon), a Master’s in Geopolitics applied to Money and Finance (Paris), a Master’s in European Business Law (Paris), is a graduate from HEC (Paris) and holds a PhD from the University of St Gallen. An Affiliate Professor at EDHEC, he also lectures at EADA (Barcelona), aswell as universities and business schools. He collaborates regularly as an expert with Invest Europe, France Invest and the Swiss Private Equity and Corporate Finance Association. He is the author of: ■ Développement durable et finance (Maxima, 2003). ■ Introduction au private equity (Revue Banque Editeur, 2006, 2nd edn 2008, 3rd edn 2009, 4th edn 2012, 5th edn 2015, 6th edn 2018) – foreword by Xavier Moreno (former President of the AFIC, Managing Partner of Astorg Partners). ■ Profession: business angel – Devenir un investisseur providentiel averti,withM. Fournier (Revue Banque Editeur, 2008) – foreword by Claude Bébéar (Chairman of the Board of Axa, Chairman of the think tank Institut-Montaigne). ■ Le marché, les acteurs et la performance du private equity suisse, with M. Ped- ergnana (SECA, 2009, 2nd edn 2012) – foreword by Patrick Aebischer (President of the Ecole Polytechnique Fédérale de Lausanne). He can be reached at: [email protected], +41 79 813 86 49. xi k k Trim Size: 170mm x 244mm Demaria537380 cintro.tex V1 - 03/23/2020 5:06pm Page 1 Introduction he initial version of this book was born as an exercise of pedagogy in a sector which Twas largely uncharted: private equity. I wrote then that it was the direct result of ‘my experience of reading the available literature and my recurring lack of satisfac- tion regarding their ability to combine so as to formulate an articulate theory’. I was obviously not the only one.