I am not exactly a fan of PE (Private Equity), have read to many horror stories about this industry. Too often it involves asset stripping and a huge amount of leverage. I guess there are exceptions though, although I haven't seen many.
One interesting read in this category is the following:
"Dick Smith is the Greatest Private Equity Heist of All Time"
"Want to know how to turn $10m in to $520m in less than two years? Just ask Anchorage Capital. The private equity group has pulled off one of the great heists of all time, using all the tricks in the book, to turn Dick Smith from a $10m piece of mutton into a $520m lamb."
And the not unexpected follow up:
"Why Banks Pulled the Pin on Dick Smith"
Showing posts with label Private Equity. Show all posts
Showing posts with label Private Equity. Show all posts
Thursday, 7 January 2016
Monday, 13 April 2015
CIMB selling part of PE business?
Article in Focus Malaysia (partially behind paywall): "CIMB’s ex-CFO to buy its PE biz".
Please note that the article is based on rumours: "It is learnt", "A banker says", etc., no official announcement has been made, so we need to wait for official confirmation.
The deal would be noteworthy since there would be a large conflict of interest the stake being takeover by the people who manage it:
"... former chief financial officer Kenny Kim and senior executives mulling a takeover of the banking group’s private equity business.Under the deal, Kim and his associates are expected to acquire a 70% stake in the CIMB private equity unit, with the balance to be retained by the banking group."
The reasoning behind the possible move seems to be:
" .....a move by CIMB to detach the private equity unit’s financials from the group’s consolidated accounts. This is part of the implementation of Target 2018 or T18, announced in February, that includes the bank’s aim of a return on equity (RoE) of more than 15% by 2018.In FY13, the latest financial year for which its results are available, the CIMB private equity business went into the red with a RM4.68 mil loss after four years of profit. The sale of CIMB’s private equity business may improve some of the T18 financial benchmarks."
That would be kind of reasoning (dressing up of the accounts) of which I am not exactly a fan.
Managers of PE funds normally work under a 2/20 rule, meaning they would get 2% a year (in this case a cool RM 120 Million) and subsequently 20% of the profit after returning the original amount to the investors (since the amount under management is RM 6 Billion, this could be very substantial).
The PE industry in the US is quite controversial, here is a collection of articles from one of my favourite bloggers on this subject.
Please note that the article is based on rumours: "It is learnt", "A banker says", etc., no official announcement has been made, so we need to wait for official confirmation.
The deal would be noteworthy since there would be a large conflict of interest the stake being takeover by the people who manage it:
"... former chief financial officer Kenny Kim and senior executives mulling a takeover of the banking group’s private equity business.Under the deal, Kim and his associates are expected to acquire a 70% stake in the CIMB private equity unit, with the balance to be retained by the banking group."
The reasoning behind the possible move seems to be:
" .....a move by CIMB to detach the private equity unit’s financials from the group’s consolidated accounts. This is part of the implementation of Target 2018 or T18, announced in February, that includes the bank’s aim of a return on equity (RoE) of more than 15% by 2018.In FY13, the latest financial year for which its results are available, the CIMB private equity business went into the red with a RM4.68 mil loss after four years of profit. The sale of CIMB’s private equity business may improve some of the T18 financial benchmarks."
That would be kind of reasoning (dressing up of the accounts) of which I am not exactly a fan.
Managers of PE funds normally work under a 2/20 rule, meaning they would get 2% a year (in this case a cool RM 120 Million) and subsequently 20% of the profit after returning the original amount to the investors (since the amount under management is RM 6 Billion, this could be very substantial).
The PE industry in the US is quite controversial, here is a collection of articles from one of my favourite bloggers on this subject.
Sunday, 3 November 2013
PE, M&A, IB in Singapore
"Banks with strong Balance Sheets tend to dominate deals – you see HSBC and DBS (a local bank) bidding on a lot of deals, as well as Standard Chartered, Citi, and so on.
There are very, very few mega-deals here because most companies are not that big.
If you do see a mega-deal, almost every single bank will be involved – on some larger M&A deals, you’ll see GS, CS, JPM, DB, Citi, DBS, and more, all listed as advisers.
Most companies worth over $300 million USD here are family-owned or state-owned, and most families do not want to divest their companies – so M&A activity above that level is limited (and there are even fewer $1 billion+ USD deals in a given year).
As a result, many bulge bracket banks aim for deals that are “below the bar” and you’ll see the likes of GS competing with HSBC for middle-market deals, which would be unheard of in the US.
Most deals here involve natural resources or shipping, and different countries specialize in different products.
Palm oil is huge in Malaysia, while Indonesia is more about coal. Other countries may specialize in rubber, sugar, and other commodities.
Singapore is a hub for cross-border deals, partially because of the security and stability offered by the government, and partially because of its location.
The most common deal types here are debt and equity issuances. Many bonds are issued here because we’re so “stable”; with ECM, you see a lot of secondary offerings and rights issues.
If you work at a boutique firm here, as I did, there will be even less modeling than at a boutique in the US or UK.
It’s a very sales-oriented job with a ton of pitch books, and boutiques are at a major disadvantage since the bulge brackets tend to be strongest in the debt and equity deals that are the most common here.
Q: So is it safe to say that most companies do deals in Singapore because of the safety and stability over all else?
A: Yes – the rest of Southeast Asia is perceived as “risky,” since you never know when the government will collapse, seize all property, or otherwise do something crazy, but Singapore is all about law and order.
Companies that list here do so because they want stable stock prices; the main downside is that there’s far less liquidity than in Hong Kong, so some choose to list there instead.
In line with this, there’s relatively little in the way of junk bonds, high-yield debt, and so on. That has been changing recently and some companies are now targeting Singapore for issuances that are too small for USD investors, but the volume is still low compared to other countries.
Q: You mentioned before how there are lots of cross-border deals there – does that explain why you don’t see the same language requirements you do in Hong Kong?
A: Sort of, but not really – it’s a little misleading to think that you will be working on tons of cross-border deals if you work here.
Each country here speaks a different language (Indonesian Bahasa vs. Malaysian Bahasa vs. Thai vs. Vietnamese vs. Tagalog…) and most bankers will focus on 1-2 countries because no one can possibly use 5-10 different languages at a professional level.
There isn’t a strict language requirement, but you still do gain a big advantage by knowing the local language – some companies’ filings and documents will be in the local language as well.
Q: Thanks for explaining that. What about on the private equity / venture capital / hedge fund side?
You mentioned that those industries are all relatively new in Singapore.
A: Yeah, I doubt there are even 50 “real” buy-side firms here (NOTE: Our lists show around ~100 firms, but some of those may not be traditional PE funds / HFs).
Various reasons explain this:
For hedge funds, the market here is too “stable” and doesn’t offer the liquidity and volatility that many funds need to make money – so you’ll see more of them in Hong Kong.
With that said, there are still some top-performing hedge funds here, including a well-known Singaporean quant fund… since you don’t have to trade the local market necessarily.
Most of the companies here are too small for the mega-funds to be interested, though that’s starting to change.
Some PE firms have focused on only a specific sector, so they wouldn’t necessarily want to bring in a team of generalists.
On the other hand, Singapore is a great country in terms of light taxes and regulations, and tons of wealthy individuals are moving here – so I think you’ll see more fund activity in the future.
Southeast Asia has a good growth story, but it’s not as good as the China or India growth story; there are also more cultural and language barriers since you’re dealing with multiple different high-growth countries instead of just one.
Q: So do you think it’s easier for foreigners to find work in Singapore compared to other Asian countries?
A: Well, it’s definitely easier to get a job here than in China – as your numerous interviewees in China have pointed out in the past.
There isn’t a strict language requirement and it’s much more multicultural, so they’re not going to turn you away for “not being Chinese enough.”
With that said, it’s still tough to come here and simply network your way into a job. You’d have a better chance by going through headhunters or transferring internally.
Most firms here still prefer local candidates, especially those from the top 3 universities, but people who studied abroad at top schools and then come back here find work as well.
Similar to the system in Mexico, many firms will put you through an extended “probation period” where they see how you perform as an intern for a long time before giving you a real full-time offer.
So you have to be prepared for that if you’re coming here as a fresh graduate with no work experience."
The above from an article in BusinessInsider, the full article can be found here.
There are very, very few mega-deals here because most companies are not that big.
If you do see a mega-deal, almost every single bank will be involved – on some larger M&A deals, you’ll see GS, CS, JPM, DB, Citi, DBS, and more, all listed as advisers.
Most companies worth over $300 million USD here are family-owned or state-owned, and most families do not want to divest their companies – so M&A activity above that level is limited (and there are even fewer $1 billion+ USD deals in a given year).
As a result, many bulge bracket banks aim for deals that are “below the bar” and you’ll see the likes of GS competing with HSBC for middle-market deals, which would be unheard of in the US.
Most deals here involve natural resources or shipping, and different countries specialize in different products.
Palm oil is huge in Malaysia, while Indonesia is more about coal. Other countries may specialize in rubber, sugar, and other commodities.
Singapore is a hub for cross-border deals, partially because of the security and stability offered by the government, and partially because of its location.
The most common deal types here are debt and equity issuances. Many bonds are issued here because we’re so “stable”; with ECM, you see a lot of secondary offerings and rights issues.
If you work at a boutique firm here, as I did, there will be even less modeling than at a boutique in the US or UK.
It’s a very sales-oriented job with a ton of pitch books, and boutiques are at a major disadvantage since the bulge brackets tend to be strongest in the debt and equity deals that are the most common here.
Q: So is it safe to say that most companies do deals in Singapore because of the safety and stability over all else?
A: Yes – the rest of Southeast Asia is perceived as “risky,” since you never know when the government will collapse, seize all property, or otherwise do something crazy, but Singapore is all about law and order.
Companies that list here do so because they want stable stock prices; the main downside is that there’s far less liquidity than in Hong Kong, so some choose to list there instead.
In line with this, there’s relatively little in the way of junk bonds, high-yield debt, and so on. That has been changing recently and some companies are now targeting Singapore for issuances that are too small for USD investors, but the volume is still low compared to other countries.
Q: You mentioned before how there are lots of cross-border deals there – does that explain why you don’t see the same language requirements you do in Hong Kong?
A: Sort of, but not really – it’s a little misleading to think that you will be working on tons of cross-border deals if you work here.
Each country here speaks a different language (Indonesian Bahasa vs. Malaysian Bahasa vs. Thai vs. Vietnamese vs. Tagalog…) and most bankers will focus on 1-2 countries because no one can possibly use 5-10 different languages at a professional level.
There isn’t a strict language requirement, but you still do gain a big advantage by knowing the local language – some companies’ filings and documents will be in the local language as well.
Q: Thanks for explaining that. What about on the private equity / venture capital / hedge fund side?
You mentioned that those industries are all relatively new in Singapore.
A: Yeah, I doubt there are even 50 “real” buy-side firms here (NOTE: Our lists show around ~100 firms, but some of those may not be traditional PE funds / HFs).
Various reasons explain this:
For hedge funds, the market here is too “stable” and doesn’t offer the liquidity and volatility that many funds need to make money – so you’ll see more of them in Hong Kong.
With that said, there are still some top-performing hedge funds here, including a well-known Singaporean quant fund… since you don’t have to trade the local market necessarily.
Most of the companies here are too small for the mega-funds to be interested, though that’s starting to change.
Some PE firms have focused on only a specific sector, so they wouldn’t necessarily want to bring in a team of generalists.
On the other hand, Singapore is a great country in terms of light taxes and regulations, and tons of wealthy individuals are moving here – so I think you’ll see more fund activity in the future.
Southeast Asia has a good growth story, but it’s not as good as the China or India growth story; there are also more cultural and language barriers since you’re dealing with multiple different high-growth countries instead of just one.
Q: So do you think it’s easier for foreigners to find work in Singapore compared to other Asian countries?
A: Well, it’s definitely easier to get a job here than in China – as your numerous interviewees in China have pointed out in the past.
There isn’t a strict language requirement and it’s much more multicultural, so they’re not going to turn you away for “not being Chinese enough.”
With that said, it’s still tough to come here and simply network your way into a job. You’d have a better chance by going through headhunters or transferring internally.
Most firms here still prefer local candidates, especially those from the top 3 universities, but people who studied abroad at top schools and then come back here find work as well.
Similar to the system in Mexico, many firms will put you through an extended “probation period” where they see how you perform as an intern for a long time before giving you a real full-time offer.
So you have to be prepared for that if you’re coming here as a fresh graduate with no work experience."
The above from an article in BusinessInsider, the full article can be found here.
Wednesday, 8 February 2012
Better to run a Private Equity Fund than to invest in one
Commissions, commissions, commissions. Managers of Private Equity Funds (similar to Hedge Funds) know all about them. Buyer beware!
http://www.nakedcapitalism.com/2012/01/quelle-surprise-its-better-to-run-a-private-equity-fund-than-invest-in-one.html
http://www.nakedcapitalism.com/2012/01/quelle-surprise-its-better-to-run-a-private-equity-fund-than-invest-in-one.html
It’s perverse that it takes a Mitt Romney presidential bid to shed some long-overdue harsh light on the private equity industry.
It was not as hard as you might think to do well in the private equity business in the 1990s. Rising equity markets lift all boats, and PE is levered equity. A better test of the ability to deliver value is how they did in more difficult times.
The Financial Times reports on a wee study it commissioned to look into who reaped the fruits of private equity performance. Its findings:
From 2001 to 2010, US pension plans on average made 4.5 per cent a year, after fees, from their investments in private equity. In that period, the pension funds paid an average 4 per cent of invested capital each year in management fees. On top of those, private equity often collects a variety of other fees and a fifth of investment profits
“Assuming a normal 20 per cent performance fee, this would amount to about 70 per cent of gross investment performance being paid in fees over the past 10 years,” said Professor Martijn Cremers of Yale.
Now some readers might argue that even with fund managers feeding at the trough, 4.5% per annum returns were still better than the S&P 500, which delivered 1.7% compounded annual returns over the decade. But they are missing several things. First is that the S&P is extremely liquid and tolerates trades in size. By contrast, when you hand your money over to a PE fund, it is an expected 5 to 7 year commitment, and if the fund does badly, they will hold on to your money longer hoping a rally will allow them to unload some garbage barges at a decent price. I have no idea what rules of thumb are used to adjust returns to allow for extreme illiquidity and a lack of any control over exit timing, but in the stone ages when Goldman would value illiquid securities for estate purposes (a task that fell to junior investment bankers), we’d apply a 20% to 40% haircut.
A lot of investors, notably university endowments, took big hits when they put too much in private equity and found they were stuck in the crisis during 2007 to 2009. Some actually tried selling PE stakes in a pretty much non-existant secondary market and took huge haircuts. In addition, there were widespread complaints of the PE funds publishing phony valuations of their portfolios during that period. Bigger swings in value mean more risk, which mean worse Sharpe ratio, which is one of the benchmarks used by the pension fund soothsayers consultants.
So where are the customers’ yachts? The release of Mitt Romney’s tax returns, which show $21.7 million of income in 2010 and $20.9 million for 2011, demonstrate he could buy a fleet of yachts. Wonder how often he takes his clients for a ride, in both senses of the word.
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