Insights on Private Equity – By Carlton Pereira, MD

He started with giving us the broad areas in private equity –

· Activity of Raising Money

· Deal Making or Investing Itself

· Managing Investments

He gave us a basic model to understand Private Equity:-

Some of the key characteristics of Private Equity are:-

· Illiquid in nature

· Investment is made on commitment basis

Fund managers are paid by management fee (generally 2 percent of the fund) and carried interest (20 percent of profit in most agreements).

Some myths about private equity are:-

· Private Equity is portfolio investment

· Private Equity investors are “sharks”

· Private Equity returns are generated by Financial Engineering

· Private Equity is disruptive in terms of asset stripping or management change

The investment process involves the following steps:-

1. Preliminary Evaluation

2. Initial Negotiation / Deal Contouring

3. Business Due Diligence

4. Final Term Sheet

5. Accounting / Legal Due Diligence

6. Agreement / Investment

7. Investment

8. Monitoring

9. Exit

A “Winning Deal” is never struck !!! Exits define winners and losers !!!

Varun Kumar