Venture Capital And Private Equity 2nd Edition Josh Lerner, Felda Hardymon, Ann Leamon - Solutions

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5. What is meant by “data snooping”?
4. What are the steps in the process for converting quantitative research into an implementable trading process?
3. What is the common objective of all quantitative processes?
2. How are the methodologies utilized in economics different from those employed in the physical sciences?
1. What is the extent and purpose of human intervention in a quantitative investment management process?
7. How has the execution process undergone important changes in recent years?
6. What is meant by “performance decay”?
5.a. Why are adaptive modeling techniques used by quantitative equity managers?b. Describe several examples of adaptive modeling techniques and the challenge in using them.
4. What are meant by a fundamental, quantitative, and hybrid investment processes?
3. What are some of the reasons for the greater use of optimization techniques?
2. How is behavioral modeling used?
1. What is the purpose of estimating model risk?
6. How do the breadth of coverage and depth of analysis provided by a complex, unified approach improve the likelihood of successful investment results?
5. Why is it important to have portfolio construction and performance measurement processes that are congruent with the stock selection process?
4.a. What is “disentangling”?b. What advantages does disentangling offer over simpler, univariate analysis of return-related variables?c. Give an example of disentangling at work.
3. What advantages does a complex, unified approach offer?
2. Is the stock market segmented or integrated?
1. In what ways is the stock market a complex system?
6. What factors might influence the optimal level of residual risk an investor should take?
5. Name some ways in which an engineered approach can be expanded.
4. What are the advantages and disadvantages of engineered approaches?
3. What are the advantages and disadvantages of a passive approach?
2. What are the advantages and disadvantages of a traditional active approach to investing?
1. What is one advantage of viewing the market as an equity core comprised of various style subsets?
5. What is the rational for adjusting valuation for the economic cycle?
4. Which of the economic variables considered in the chapter explains most of the variation in the market implied equity risk premium?
3.a. What are the ranking of the phases in terms of average real price returns?b. Which phase offers the highest average real earnings growth?
2. What has historically been the key driver of equity prices in the very long run?
1. Identify four key drivers of the P/E multiple.
5. Relative valuation approaches can be used for sum-of-the-parts analysis, but many practitioners will apply a “conglomerate discount” to the results of such analysis. Why do they do so, and what is the normal range applied?
4. Many analysts favor the use of industry-specific multiples for relative valuation purposes. What are some notable examples, and what advantages or disadvantages might be associated with using such metrics?
3. Consensus forecasts do not incorporate the unique insights into each company that are available from our in-house expert. Why not use our own internal estimates, rather than consensus numbers?
2. Historical results for the financial and operating performance of listed companies are readily available. Getting reasonable numbers for forecast performance is typically more difficult, and sometimes impossible.Why not rely solely on historical numbers?
1. Applying relative valuation approaches is typically more challenging for very small or very large companies. Why?
5. Explain the long term decline in value of an investment in Firm A or Firm B in terms of the FFM.
4. What is a reasonable level for the long-term P/E of a market under the following assumptions: economic book value = $500 billion, roe =15%, cap rate = 9%, return on new investments = 18%, total investment in new businesses = $20 billion per year for the next 10 years?How does the projected P/E
3. Why is it hard for CEOs of large successful companies to maintain the firm’s P/E?
2. Firm F is an excellent firm with superior management and a long history of steady earnings. After a long period of expansion, the Firm F has run out of opportunities to expand by building out new businesses. Toward what values are its TV, FV, and P/E likely to converge?
1. Firm D and Firm E have the same performance characteristics. They both have a P/E of 20× and they also have the same cost of capital, return on equity, etc. The only difference is that Firm E’s economic book value is $25 billion and Firm D’s economic book value is $25 million.Explain why,
6. Based on an integrated analysis of traditional and value-based metrics, do you agree with the Value Line ratings of Timeliness and Safety for IBM? Be sure to assign your own stock ratings and explain whether you think IBM is a potential buy or sell opportunity
5. What is the prospective EVA style quadrant of IBM for 2011? Interpret the meaning of this quadrant.
4. What is estimated NOPAT, $WACC, and EVA of IBM for 2011? Based on the estimated EVA (economic value added), is IBM a potential wealth creator or wealth waster?
3. What is the fundamental stock return for IBM for 2011? Does IBM plot above or below the Securities Market Line? Assume a risk-free rate of 5% and a market risk premium of 5% in answering this question.
2. What is the estimated ROE for IBM for 2011? Conduct a five-factor ROE Dupont analysis in answering this question. Is the estimated ROE for IBM attractive or unattractive?
1. What are the estimated annualized growth rates in revenue, cash flow, and earnings per share for IBM over the period 2011 to 2014? Are these rates favorable or unfavorable?
5. What types of data is used in traditional stock selection models?
4. Why do quantitative investors create stock selection models for?
3. When would a quantitative investor use an information coefficient (IC)over a quintile return?
2. What are three ways in which the quantitative and fundamental approaches complement one another?
1. Identify at least three ways that a quantitative investor’s process may differ from a fundamental investor’s process.
3. What are the basic building blocks used by quantitative equity investors?
2. What are the core steps in a quantitative equity investment process?
1. How do quantitative and fundamental equity investors differ?
What are the greatest risks of private equity and how do they change when you consider VC and buyouts separately?
What do you think are the most important positive benefits from a vibrant private equity industry? How does your answer change when you consider VC and buyouts?
In your opinion: What is the future of private equity; how will it evolve? Will there still be opportunities to make outsized returns? Will there be more or fewer players in the industry? Will private equity investors—and LPs—learn from their mistakes? Why or why not?
As an LP looking to invest in private equity and VC for the first time, how would you structure your portfolio? How would this change over time?
Assume your private equity firm has successfully invested two funds and you are looking to expand.What is your firm’s growth strategy and what are the potential pitfalls?
Assume you are a seasoned private equity professional setting out to start your own firm. What challenges might you face as a first-time fund and how would you overcome them? How would you want to structure your firm and how would you attract talent?
How would you structure a government program in a new geography aimed at spurring VC and entrepreneurial innovation?
What might be the benefits and disadvantages of increased disclosure by private equity groups?
What are some of the ways that public capital can better address the gaps in venture funding? What are some examples?
How do you balance over-levering a portfolio company while taking advantage of attractive financing markets? Should there be controls in place to avoid over-levering?
How would you critique a private equity fund’s strategy of investing 20 percent of its capital per annum? (Assume five-year investment horizon.) What are the potential advantages and disadvantages of this type of strategy?
Despite the spectacularly poor performance of private equity funds over the 2008–2010 period, explain why some endowments and pension funds might have increased their allocation to this asset class.
Draw the shift in supply and demand for private equity capital during peak of the boom in 2007 to the immediate recession that followed in 2008 to the period of economic recovery in 2009. Do you think the period from 2019 to 2022 (and going forward) will look the same or different? In what way?
Why would private equity firms be willing to pay higher prices for enterprises during boom periods when they are no more likely to go public or be sold for higher valuations than enterprises purchased in other periods? Why not sit on the sidelines until valuation expectations come down?
During which market cycles would it be advantageous to be a “net seller” or a “net buyer”?
Why are experienced VC and buyout firms more active than their less seasoned peers during periods of public market attractiveness?
How have the spreads of Aaa and Baa corporate bonds changed over time? What impact do these spreads have on buyout activity?
How is the level of private equity fund raising correlated with the public markets? Why is this the case?
How are the drivers of VC and buyout cycles different?
Provide an example of how synergies may be possible for private equity groups across funds.
How does Warburg Pincus’ model differ from other mega-funds? What are some of the barriers to other firms replicating this model?
What are some of the common characteristics among successfully run private equity firms? Which do you view as the most important?
Why do venture capital groups tend to become less specialized over time?
What key missteps were made by Clayton, Dubilier & Rice as they expanded? What happened to their fund performance? What qualities of the firm made it possible for them to turn themselves around?
What happens to the compensation structure of a partner (as it relates to the traditional 2 percent fee and 20 percent carried interest) as the AUM per partner grows? What happens to the alignment of interests among LPs and the GP?
From an LP’s perspective, when does it make sense for a private equity firm to grow?
What are some of the reasons that private equity firms that grow too quickly often see deterioration in their returns?
Relative to other asset classes, are private equity fund performances more predictable? How is this different for the overall asset class?
Explain why private equity groups that have outperformed their peers are more likely to continue to do so in subsequent finds? How is this different for venture capital and buyout funds?
As a lower-tier fund, how would you go about improving your performance?
If you were a GP in a mid-or bottom-tier fund, how would you position yourself to raise funds?
Since performance persistence has weakened in buyouts, how should an LP respond?
If performance persists in venture capital, why would anyone ever invest in a mid- or bottom-tier fund?
What would make FTFs tend to perform well? What would explain the relative performance shown in Exhibit 12.3?
Why are there extreme disparities in performance among private equity funds relative to differences in performance among other asset classes?
Describe the role of culture in the management of private equity firms.
Describe the main operating management characteristics of large-scale firms? What drives them?
Describe the main operating management characteristics of small-scale firms. Why do they exist?
What are the basic ways carry is divided in private firms? What are the rationales for the basic schemes?
How does compensation vary by level in a private equity firm? When is carry granted?
Describe the main principles of the compensation structure in private equity firms. How are the firm’s cash-flow sources matched to the elements of compensation?
How might institutional investors encourage private equity firms to increase the number of diverse investment professionals among their ranks? What risks do they run? What challenges might diverseowned firms encounter as they grow?
How does minority investing differ from majority investing? In particular, how are the investor skill sets different?
Besides investment decisions, what are the other critical decisions that GPs must make?
What are venture partners and operating partners and their roles in a private equity firm?
How does the principal job differ from the associate job? What are the keys to promotion for a principal?
How does the associate job differ from the analyst job? What are the keys to promotion for an associate?

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Venture Capital And Private Equity 2nd Edition Josh Lerner, Felda Hardymon, Ann Leamon - Solutions

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