Showing articles with tag: private equity

Valuing Private Equity Investments Strip by Strip

Institutional investors have steadily increased their allocation to asset classes that do not trade on public securities markets — such as private equity, which now accounts for $5.8 trillion in assets under management. However, traditional asset pricing methods are not well suited to value investments that do not trade on…

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Constructing Optimized Private Equity Programs

We believe that as private markets have grown, institutional investors consider such strategies less ‘alternative’ and more ‘core’ to their overall portfolio. As a result, there is a growing need to take a more holistic and analytical approach in building private market portfolios, benefitting from the various investment types available…

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Private Equity and Taxes

We study companies’ tax avoidance behavior after being acquired in a private equity transaction. We find that target companies’ effective tax rate decreases by 16.14% relative to the unconditional mean. This finding is in line with the hypothesis that private equity investors create shareholder value by extracting money from the…

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Contracts with Benefits: The Implementation of Impact Investing

Impact investing has rapidly become a major force in both the public and private financial markets. In just a decade or so, it has grown both on the money-management side and on the entrepreneurial side from a niche to a sector with at least $35 billion in deals in 2018Continue reading

Do Private Equity Firms Pay for Synergies?

It is a commonly accepted view that strategic acquirers incorporate synergistic value into their bids for targets, while private equity (PE) funds presumably do not because they lack operating similarities with the portfolio firm. Empirical evidence provides some support for this view but is limited to PE bids in so-called…

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Private Equity Buyouts: Anti- Or Pro-Competitive?

Antitrust authorities intervene in mergers and acquisitions involving private equity (PE) firms. For example, in October 2011 a federal judge in the U.S. stopped H&R Block from acquiring 2nd Story Software, owned by the PE firm TA Associates. The Justice Department argued that the merger would harm competition in the…

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Investing Outside the Box: Evidence from Alternative Vehicles in Private Equity

The last two decades have seen a significant transformation of the structure of the private equity (PE) industry. Not only has the amount of capital under management by buyout, venture, and private debt funds grown dramatically, but it has become more concentrated in a smaller set of fund families. At…

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Persistent Blessings of Luck: Theory and an Application to Venture Capital

Financial economists have long debated whether or not investment managers differ in the skills they have. While studies of individual stocks, mutual funds, and other fund classes generally find that investors do not consistently outperform passive benchmarks after-fee and out-performance is not persistent, an important exception is the private equity…

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Is Private Equity Good for Consumers?

Private equity firms are becoming increasingly entrenched in the day-to-day lives of consumers, acquiring many of our favorite products found on store shelves.  Should consumers care?  What happens to brands under private equity ownership?  These deals often elicit negative reactions.  A common view is that private equity firms try to…

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Liquidity Provision in the Secondary Market for Private Equity Fund Stakes

Once marginal due to contractual restrictions on transfers, the secondary market for Private Equity Fund (PEF) stakes took off soon after the 2008 financial crisis to an annual turnover of over $30 billion per year.

Behind this growth are the liquidity needs experienced by some investors since the crisis and…

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Why You Should Consider a “Permanent Capital” Investment Strategy

Much of the capital available to Small and Medium Enterprises (SMEs) around the world is in the form of private equity. Most of this capital is allocated via Private Equity (PE) firms that are generally structured with 10-year terms, and the investment target is 3x to 5x return in 3…

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Decreasing Returns or Reversion to the Mean? The Case of Private Equity Fund Growth

This article analyzes the interaction between the growth and the performance of the two most prominent groups of private equity (PE) funds: buyout funds and venture capital (VC) funds.

These funds are usually structured as closed-end, limited-life vehicles. Therefore, in order to keep earning fees, PE firms periodically attempt to…

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When Investor Incentives and Consumer Interests Diverge: Private Equity in Higher Education

This paper studies the role of private equity in for-profit higher education.

Private equity and formerly private equity owned schools account for approximately 35 percent of total US for-profit enrollment, which in turn totals more than 2.5 million students per year. Relative to closely-held private firms or diffusely-held publicly traded…

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The Deregulation of the Private Equity Markets and the Decline in IPOs

Recent years have seen a sharp decline in the number of initial public offerings (IPOs) in the U.S.

While this decline has garnered considerable attention both in academic and policy circles and in the press, its causes remain unclear (Gao, Ritter, and Zhu (2013); Doidge, Karolyi, and Stulz (2013, 2017)).…

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The Remaking of Wall Street

Since the financial crisis of 2007-09, Wall Street has transformed dramatically. Constrained by post crisis regulatory limits, those investment banks surviving as bank holding companies (BHCs) have curtailed their investment banking and other activities. At the same time, private equity firms - among them, Blackstone, KKR, Apollo and Carlyle -…

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Team Stability and Performance: Evidence from Private Equity

In the paper “Team Stability and Performance: Evidence from Private Equity”, we empirically study the effect of team stability on performance in a team production environment. The effect of team stability on organizations is ambiguous. Stability (or lower turnover) can induce individuals to invest in relationship specific (team specific) capital…

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