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equity asset valuation

Private Equity Opportunities And Risks 1st Edition H. Kent Baker, Greg Filbeck, Halil Kiymaz - Solutions

Discuss key performance indicators for which PE ownership had the most significant impact and compare these indicators to those for strategic transactions.
Explain the relationship among leverage, the IRR, and industry movements according to the study presented in this chapter.
Discuss the factors contributing to the failure of the traditional LBO models as explained by valuation multiples.
Identify the main value creation factors for LBO transactions.
Explain why the worst performing BO funds over the long term are often the largest funds by investment size.
Identify the practical limitations of implementing an investment approach based on top quartiles.
Explain the relationship between a PE firm’s fundraising and the valuation levels it reports for its PE investments. How does that behavior influence the search for topquartile managers?
Explain what the PME approach toward benchmarking PE returns seeks to accomplish.
Discuss the factors to consider when evaluating a fund based on its cash-on-cash returns (multiples) or the IRR.
Identify the most important types of selection bias and explain their effect if the sample is not corrected for them.
Explain the stale pricing problem and how to address it.
Explain the difference between measuring perform
Discuss the factors to consider when choosing a benchmark, the drawbacks of using a public equity index as a benchmark, and how to adjust the index to compensate for these shortcomings.
Discuss the pros and cons of measuring PE performance using IRR, PME, and RCR.
Explain how the Dodd-Frank Act and AIFMD relate to PE liquidity risk.
Explain the avenues through which PE LPs faced liquidity problems during the GFC.
Describe the impact of the GFC on PE GPs in terms of liquidity.
Explain the term “denominator effect” for PE and the GFC and discuss its impact on the PE secondary market.
Identify and discuss the two types of liquidity risk investors face in PE.
Compare the regulatory approach of the United States and the European Union toward the PE industry.
Discuss general trends in the U.S. PE industry.
Discuss how recent actions taken by central banks in the late 2000s and early 2010s in the United States and Europe influenced PE activity.
Discuss how PE firms create value in their portfolio companies
Discuss how PE firms improve corporate governance in their investee companies
Identify the criticisms and benefits of PE.
Explain the difference between GPs and LPs and how they are compensated.
Explain the nature and functions of PE firms.
Discuss how the Dodd-Frank Act affects PE.
Define a sovereign wealth fund and explain the role that sovereign wealth funds play in PE.
Discuss the primary trend in institutional investing in PE and the forces driving that trend.
List the drivers of PE returns in the 2000s and early 2010s and explain what is likely to have a bigger influence on returns in the latter half of the 2010s and beyond.
Explain the evolution of PE in terms of geography and discuss globalization trends for the next decade.
Discuss how different organizational structures can explain variation in market risk across PTPE firms.
Explain the reasons for discounts to NAVs in listed PE funds.
Describe the organizational forms of PTPE and explain the similarities and differences compared with non-listed PE.
Discuss the advantages and disadvantages of PTPE compared with conventional PE from an investor’s viewpoint.
Explain how to calculate carried interest for a fund using the following data and assuming a $100 million fund. Assume a 2 percent management fee, 20 percent carried interest rate, and 100 percent
Describe the typical fees of a PE fund and fund-of-funds.
Discuss an alternative structure to the general “2–20” framework for managerial compensation.
Discuss the two typical forms of PE funds-of-funds.
Discuss whether a threshold of economic development exists in which PE activity emerges.
Explain why the BRICs attract increasing amounts of PE capital.
Discuss the six key criteria that lead to deal flow and attract investors.
Discuss why PE investments are concentrated in particular economies.
Describe the global trend of the PE investment volume and the development in traditional versus emerging countries.
Discuss why listed PE is a more attractive asset class relative to limited partnership PE investment for smaller institutional investors.
Explain the values of the listed PE fund betas.
Discuss how listed PE funds have performed over time since their first listing date.
Discuss why listed PE enables institutional investors to achieve their target PE allocations quicker, and as such, institutions that invest in listed PE are less likely to adjust their listed PE
Discuss why listed PE is less likely to be considered by an institutional investor whose decision-making is delegated to an equities team.
Explain why listed PE might be more commonly considered by institutional investors based in the United Kingdom than their counterparts in continental Europe.
Define a CMPO and discuss its major advantage relative to a traditional PIPE and SEO.
Discuss the role that placement agents play in a typical PIPE deal.
Identify the three categories of contingent contractual terms in a typical PIPE offering, give an example for each category, and explain how that term affects the cash flow or control rights of
Identify the major investors in the PIPE market and how their objectives affect PIPE deal structure.
Explain how a PIPE offering differs from a SEO and why PIPEs have become an alternative to SEOs.
Describe a PIPE offering.
A former German minister described PE funds as a “swarm of locusts.” Interpret the meaning of his statement and discuss whether that analogy is correct.
Discuss whether the laws and strategies used in the European Union are similar to those in the United States.
Explain the laws and private strategies limiting the success of hostile corporate takeovers in the United States.
Discuss whether PE funds are investment companies subject to regulation under the Investment Company Act of 1940 and whether they must register offerings of their investment interests under the
Discuss how the relative bargaining power of LPs and GPs affects various fee terms in LPAs.
Denote c as the carried interest, h as the hurdle rate, and u as the catch-up. Determine the IRR of a fund at which the catch-up provision expires (i.e., GPs and LPs share profits according to the
Consider two funds that each invest $100 million today and produce $120 million over the next three years. Both have an 8 percent hurdle rate, a 100 percent catch-up premium, and a clawback
Consider a fund with a 20 percent carried interest and a hurdle rate of 8 percent. The committed capital is $100 million, and the entire amount is invested on the first day of its operation. The
Discuss key performance indicators for which PE ownership had the most significant impact and compare these indicators to those for strategic transactions.
Explain the relationship among leverage, the IRR, and industry movements according to the study presented in this chapter.
Discuss the factors contributing to the failure of traditional LBO models as explained by valuation multiples.
Identify the main value creation factors for LBO transactions.
Explain how institutional investors determine their choices in PE.
Distinguish between the behavior of individual and institutional investors in PE.
Outline the terms of the covenants that establish the contract between institutional investors and PE.
Explain the structure of PE
Describe the growth and development of the PE market.
Describe an institutional investor and list major types.
Identify the challenges faced in the due diligence process.
Discuss how both corporate and national culture can influence a deal.
Discuss strategic due diligence.
Explain why the law is important in conducting due diligence in PE.
Explain the importance of commercial due diligence in PE.
Define due diligence and discuss its importance in PE.
Explain why the worst performing BO funds over the long term are often the largest funds by investment size.
Identify the practical limitations of implementing an investment approach based on top quartiles.
Explain the relationship between a PE firm’s fundraising and the valuation levels it reports for its PE investments. How does that behavior influence the search for topquartile managers?
Explain what the PME approach toward benchmarking PE returns seeks to accomplish.
Discuss the factors to consider when evaluating a fund based on its cash-on-cash returns (multiples) or the IRR.
Identify the most important types of selection bias and explain their effect if the sample is not corrected for them.
Explain the stale pricing problem and how to address it.
Explain the difference between measuring performance based on return gross of fees and net of fees and why each measure is used.
Discuss the factors to consider when choosing a benchmark, the drawbacks of using a PE index as a benchmark, and how to adjust the index to compensate for these shortcomings.
Discuss the pros and cons of measuring PE performance using IRR, PME, and RCR.
Identify the two largest PE markets in the world and factors contributing to the size of these markets.
Identify the factors that affect cross-sectional PE BO activity and identify any global trends that occurred between 2006 and 2013.
Explain whether investors should include PE in a diversified portfolio.
Explain why the PE return results reported in this chapter should be viewed with some skepticism.
List the main reasons VCs want to exit an investment.
Identify the main geographic areas where PE-backed IPO deals took place between January 2005 and June 2014.
List the three main reasons that a firm initiates an IPO.
Discuss the advantages and disadvantages of a trade sale as an exit strategy.
Describe the traditional exit routes for a PE fund.

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