Different Private Equity Fund Strategies

by Simon Tang

Before we get into the different private equity fund strategies, let’s get something out of the way to avoid confusion: the term “Private Equity” is actually a misnomer. In the early days of this industry, say in the 1970s and 1980s, private equity was just that: capital from private investors went to private funds which then invested in private companies. Private equity was easy and straightforward. Fast forward to today and the landscape is so much more complex in many different ways.

On the LP front, investors include public pension funds and as the name implies, they invest capital on behalf of their beneficiaries which are segments of the general public such as teachers and civil servants. In terms of the investment vehicle or fund structure, it could actually be a publicly-listed entity where interests of the fund are traded on the open market. Then there are the underlying deals or portfolio companies, which could also be publicly listed in the case of PIPEs (private investment in public equities) or Take-Private (delisting) transactions. Clearly, “private” isn’t necessarily private. But the “equity” in private equity isn’t necessarily equity either with debt strategy focused managers raising debt funds to invest in different debt instruments. Finally, there are the underlying companies that might not even be companies, such could be the case with infrastructure, renewable and real estate investments that are projects or hard assets.

From an investment stage perspective, “private equity” essentially covers the timeline of a company’s evolution. Venture capital refers to the early stage development of a company, but even venture capital has its own sub-stages that have their own unique risk return characteristics such as seed stage and start-up vis-a-vis late stage venture and early growth. The next group of private equity fund strategies from a stage point-of-view would be growth equity and buyout, and here again, there are sub-strategies if you will, such as funds focused on MBOs, buy-and-build, LBOs, refinancings and many more. In between these investment stages, debt capital is also usually available for these transactions with venture debt funds being raised for venture deals, and subordinated debt or senior debt funds for growth or buyout deals, plus there are variations of these categories too, such as sponsored or unsponsored; in other words, whether there is an equity investor or not in the deal.

The Output of any analysis is only as good as the input

For further complexity, there is also the issue of transaction or deal size, which consequently dictates the fund size raised by a GP. Case in point: venture capital funds can range anywhere from under $100m to over a $1B, while buyout funds can range from approximately $100-200m for small cap strategies to the multi-billion dollar mega buyout funds where an underlying portfolio company investment can be hundreds of millions in size.

Regardless of whether you’re a GP performing peer benchmarking or a LP doing due diligence on a track record or investigating markets, it is imperative to have a clear view on these various private equity fund strategies when you are performing any analysis. The output of any analysis is only as good as the input, which is both the data and the analysis capabilities.

The CEPRES digital Platform – Designed to handle the broad spectrum of private equity fund strategies

The CEPRES Platform is specifically designed to handle the broad spectrum and variations of private equity fund strategies. The private equity data behind our platform is granular: it includes gross and net cash flows, operating metrics such as revenue, EBITDA and debt, plus the investment characteristics of portfolio companies such as stage, sub-stage, industry, sector, transaction type, and many more. It is the world’s largest and most detailed market data set for private equity; I beg your pardon, for the “Private Markets”. These millions of data points are wrapped by the sophisticated platform that is engineered for maximum analysis capability and flexibility, allowing you to specify various characteristics at the Investment Manager, Fund, Deal and Operating Metrics levels so that you have full control of your analysis.

Interested in analyzing the risk, return and value creation of unrealized US consumer and industrial sector buyout transactions between 2010 and 2017 with portfolio company entry EBITDA in the range of $50-$100m from US-focused funds with a fund size of less than $1bn? Looking to compare the debt ratios and entry valuations of DACH (German-speaking) based companies with an enterprise value in the range of EUR100-500m against their peers in the broader European market? Yes, you can customize the criteria specifications in the CEPRES Platform so that it directly fits your requirements and is relevant for your particular analysis.

The private equity market may be a complex web of strategies and have its own terminology, lingo, or misnomers, but when it comes to your private equity analysis, there should be no ambiguity. As a GP preparing for fundraising and conveying your strategy to LPs, use our platform to prove your strengths against the right set of peers. As a LP conducting due diligence on track records and researching markets, use the CEPRES Platform to understand the risk return profile and underlying drivers of both funds and deals.

The CEPRES digital Platform – the investment decision platform for the private markets: Register here!

Want to know more about the complexities of private equity fund strategies and how to get a firm handle on them? Contact us at info@cepres.com

Simon Tang, CEPRES

Simon Tang

Partner, CEPRES

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