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Asset Mgmt Private Equity & Hedge Funds
 

Asset Mgmt Private Equity & Hedge Funds

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Need to know more about private equity and hedge funds? Then you have come to the right place with this quick overview presentation. This is based on my book: "Figuring Out Wall Street". A part of a ...

Need to know more about private equity and hedge funds? Then you have come to the right place with this quick overview presentation. This is based on my book: "Figuring Out Wall Street". A part of a continuing series of on the financial services industry. We provide training, custom developed to your needs. Contact us to discuss your needs and get a quote.

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    Asset Mgmt Private Equity & Hedge Funds Asset Mgmt Private Equity & Hedge Funds Presentation Transcript

    • Financial Services Industry Training Introduction to Private Equity and Hedge Funds Saunders Learning Group, LLC Saunders Learning Group, LLC, Andover, KS
    • Training from Saunders Learning Group Saunders Learning Group provides a variety of training programs, workshops and seminars targeted to the financial services industry. Programs are available in a wide range of topics, and we are specialists in developing custom programs that are targeted to your needs. Contact the founder, Floyd Saunders at 316-680-6482 or at floyd@floydsaunders.com for more information. Saunders Learning Group, LLC, Andover, KS1
    • Topics1. The business of Private Equity2. Components of Private Equity3. Private Equity Investors4. How Hedge Funds Work5. Types of Hedge Funds Saunders Learning Group, LLC, Andover, KS Slide 2
    • What is Private Equity? Equity capital that is not quoted on a public exchange. Private equity consists of investors and funds (pension funds, mutual funds, insurance companies) that: 1. make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity. 2. Capital for private equity is raised from retail and institutional investors, and can be used to: 1. fund new technologies 2. expand working capital within an owned company, 3. make acquisitions 4. strengthen a balance sheet. The majority of private equity consists of institutional investors (pension funds and life insurance companies) who can commit large sums of money for long periods of time. Private equity investments often demand long holding periods to allow for a turnaround of a distressed company or a liquidity event such as an IPO or sale to a public company. Saunders Learning Group, LLC, Andover, KS 3 subtitle
    • Private EquityFunction  Private equity firms pools money to invest in non-public companies or public companies to make they privately held.  Creates a pool of investors via a partnership agreement  Invites limited partners to participate in a Private Equity Fund  Selects companies to make investments in often by a leveraged buy-out (LBO), or purchasing a controlling interest  In an LBO, A PE firm buys up shares of a publicly-traded company. They thenExample take it private. Makes investment and management decisions without being accountable to shareholders. They will then make changes in the business planactivities or other parts of the company to increase the profits and re-sell in an IPO.  May invest in high-potential start-up or maturing companies to assist them in going public (via Initial Public Offering or IPO)  Provide management assistance to help a company be more profitable  Evaluate investment opportunities by performing financial analysis on a company  Managing payouts to limited partners Example  List of top 20 PE firms on next pageCompanies Saunders Learning Group, LLC, Andover, KS Slide 4
    • 20 Largest Private Equity Firms Saunders Learning Group, LLC, Andover, KS Slide 5
    • Components of Private Equity Saunders Learning Group, LLC, Andover, KS Slide 6
    • Private Equity Investment Quick Facts Private Equity Firms Headquartered in the U.S.: 2,400 firms Buyout/Growth Expansion Funds Currently Fundraising in the U.S.: 315 funds Private Equity-Backed Companies Headquartered in the U.S.: 14,800 companies Employees hired by U.S. Private Equity-Backed Companies: 8.1 million employeesSource: Private Equity Growth Capital Council, http://www.pegcc.org/education/pe-by-the-numbers/ Saunders Learning Group, LLC, Andover, KS
    • Investment Patterns Coming Out of a Recession Saunders Learning Group, LLC, Andover, KS
    • Private Equity Investors Saunders Learning Group, LLC, Andover, KS Slide 9
    • Private Equity buyoutsGlobal buyout fundraising peaked near $300 billion in 2007, then dropped to just $50 billion in 2009before starting to recover in 2011. Saunders Learning Group, LLC, Andover, KS
    • What is a Hedge Fund An aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions with the goal of generating high returns. Hedge funds are private investment partnerships open to a limited number of investors and require a very large initial minimum investment. Investments in hedge funds are illiquid as they often require investors keep their money in the fund for at least one year. For the most part, hedge funds (unlike mutual funds) are unregulated because they cater to sophisticated investors. In the U.S., laws require that the majority of investors in the fund be accredited. That is, they must earn a minimum amount of money annually and have a net worth of more than $1 million, along with a significant amount of investment knowledge. You can think of hedge funds as mutual funds for the super rich. They are similar to mutual funds in that investments are pooled and professionally managed, but differ in that the fund has far more flexibility in its investment strategies. It is important to note that hedging is actually the practice of attempting to reduce risk, but the goal of most hedge funds is to maximize return on investment. Nowadays, hedge funds use dozens of different strategies, so it isnt accurate to say that hedge funds just "hedge risk". In fact, because hedge fund managers make speculative investments, these funds can carry more risk than the overall market. Saunders Learning Group, LLC, Andover, KS 11
    • Hedge Funds Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security Different from typical mutual funds, as follows:  High minimum investment, averaging around $1 million  Long-term commitment of funds is required  High fees: typically 1% of assets plus 20% of profits  Highly levered  Little current regulation Distinction from Traditional Asset Management:  Investment Vehicles  Multiple Asset Classes  Leverage  Fee Structure  Alignment of Incentives  Investor Requirements 21-12 Saunders Learning Group, LLC, Andover, KS
    • Hedge Funds Hedge funds are often trying to take advantage of unusual spreads between security prices 21-13 Saunders Learning Group, LLC, Andover, KS
    • Hedge Funds The SEC passed regulation in 2006 requiring hedge fund advisors to register with the SEC. The SEC became concerned about fraud, and hedge funds became available to the average investor via “retailization”. Saunders Learning Group, LLC, Andover, KS
    • History, Definition and Overview FEES: MANAGEMENT: 1% TO 2% OF ASSETS INCENTIVE: 10% TO 40% ON RETURNS IN EXCESS OF A HURDLE RATE (T-BILLS) HIGH WATERMARK: RETURNS BELOW HIGH WATERMARK MUST BE MADE BACK BEFORE INCENTIVE FEE APPLIES THESE INCENTIVES MAY RESULT IN TAKING ON EXCESSIVE RISK Saunders Learning Group, LLC, Andover, KS
    • TYPES OF HEDGE FUNDS Capital Structure Arbitrage  Relative value approach, attempts to capture pricing inefficiencies among various tranches of debt or equity of the same or related companies. This is trading on the relative value between a company’s common stock and bonds. Bond holders are usually the first to receive the recovery amount of a bankrupt company. If the market place releases bad news on the credit of a company the equities could receive a disproportionate hit relative to the bonds because of the differences in risk. A trader can buy the common stock and short the bonds to profit from the miss valuation. This is known as capital structure arbitrage. Convertible Arbitrage  Purchase different securities of the same issuer such as the common stock and convertible bonds, one position being long, the other short. CTA’s / Managed Futures  Commodity Trading Advisors. Trade commodity futures, options and foreign exchange; often highly leveraged;  trend following . Saunders Learning Group, LLC, Andover, KS
    • TYPES OF HEDGE FUNDS Distressed Securities  Buy the equity or debt of companies that are in or facing bankruptcy, hoping that company will come out of bankruptcy. Emerging Markets  Invest in the securities of companies from "emerging" or developing countries. Event Driven  Take positions in companies with "special situations": depressed stock; event offers significant potential market interest such as company merging with or acquired by another company; reorganizations; bad news which temporarily depress stock, which is shorted Saunders Learning Group, LLC, Andover, KS
    • TYPES OF HEDGE FUNDS Fixed Income Arbitrage  Plays the spread between similar fixed income securities. Often highly leveraged Fund of funds  Invests in a basket of different hedge funds. Benefit is to have experts choose the funds and also get into funds closed to new investors. There is a second layer of fees. Long/Short Equity  Buy securities expected to perform well and sell short securities expected to perform poorly. Often either net long or net short depending on market view Global Macro  Investment is based on shifts in global economies. Derivatives are often used to speculate on currency and interest rate moves Saunders Learning Group, LLC, Andover, KS
    • TYPES OF HEDGE FUNDS Market Neutral  Any strategy that attempts to eliminate market risk and be profitable in any market condition; equity or fixed income.  Example: beta=0 for “double alpha” Market Timing  Attempts to time the market by allocating assets among different investments such as between mutual funds and money markets. Multi-Strategy  A single hedge fund that runs several different strategies in- house. Different from a fund of funds in that the money is kept in- house as opposed to being farmed out. Thus more nimble Saunders Learning Group, LLC, Andover, KS
    • TYPES OF HEDGE FUNDS Regulation D  Private investments made in public companies in need of financing. Merger Arbitrage  Also known as “Risk Arbitrage". Invest in event-driven situations, such as leveraged buy-outs, mergers, and hostile takeovers. Example: purchase stock in the firm expected to be taken over and sell short stock of the acquiring company. Short Bias  Any manager who consistently has a "net short" exposure to the market. Includes short only funds. Saunders Learning Group, LLC, Andover, KS
    • TYPES OF HEDGE FUNDS Special Situations  Consists of some type of event driven strategy. Opportunistically trade in any type of security that deemed to be a "special situation." Statistical Arbitrage  Invest in equities believed to behave in a way that is mathematically describable. VC / Private Equity  Invest in venture capital or private equity Sector Funds Saunders Learning Group, LLC, Andover, KS
    • Strategies for Investment THE FUTURE OF HEDGE FUNDS: RETAIL OFFERINGS WILL BE APPEARING FOR SMALLER INVESTORS IS A MATURING MARKET MORE TRANSPARENCY WILL BE OFFERED MUTUAL FUNDS ARE ADOPTING SOME HEDGE FUND STRATEGIES REGISTRATION AND REGULATION IS COMING Saunders Learning Group, LLC, Andover, KS
    • Thank You !Saunders Learning Group, LLCSaunders Learning Group, LLC, Andover, KS
    • Saunders Learning Group, LLC, Andover, KS
    • Questions Saunders Learning Group, LLC, Andover, KS
    • Post Workshop Action Plan  Complete the Post Workshop Action Plan Saunders Learning Group, LLC, Andover, KS26
    • Module Summary  Monday morning you will have XX new financial management techniques that you can use immediately on your project  Don’t wait for a new project, verify financials controls on your current project Saunders Learning Group, LLC, Andover, KS27
    • Thank You !Saunders Learning Group, LLCSaunders Learning Group, LLC, Andover, KS
    • About the Author/Presenter  Floyd Saunders has worked on Wall Street with both Bank of America and JPMorgan, where is was a vice president in global financial systems. He has worked across the industry in retail, commercial, and investment banking.  He has taught courses in Money and Banking and extensively for the American Institute of Banking and various colleges.  As a consultant, he developed and taught a wide range of banking and investing courses.  He authored three programs for the American Bankers Association: Banking on Mutual Funds and Annuities, Introduction to Securities Markets and Investing in Securities.  He is the author of “Figuring Out Wall Street” and his next book is “Family Financial Freedom” a book on personal money management. Saunders Learning Group, LLC, Andover, KS
    • Reference Material Figuring Out Wall Street Consumer’s Guide To Financial Markets By Floyd Saunders Publisher: Saunders Learning Group ISBN: 978-0-9824019-0-3 Available from Amazon: http://www.amazon.com/Figuring-Out-Wall-Street- Consumers/dp/0982401906 and many other online book stores. Book summary: Figuring Out Wall Street, is the concise guide to help everyone understand how what to do now to restore our financial systems. Written in an easy to understand manner, even the most complex financial concepts are easy to digest. This book provides help to monitor investments with a review of investment products, financial regulators and economic indicators. Learn how the stock market exchanges work and the world of investment banking, hedge funds, venture capital and private equity. Every chapter includes action plans for investing. Saunders Learning Group, LLC, Andover, KS