Beyond the J Curve

In recent times, venture capital and private equity funds have
become household names, but so far little has been written for the
investors in such funds, the so-called limited partners. There is
far more to the management of a portfolio of venture capital and
private equity funds than usually perceived. Beyond the J
Curve describes an innovative toolset for such limited partners
to design and manage portfolios tailored to the dynamics of this
market place, going far beyond the typical and often-simplistic
recipe to 'go for top quartile funds'.

Beyond the J Curve provides the answers to key questions,
including:

• Why 'top-quartile' promises should be taken with a huge pinch
  of salt and what it takes to select superior fund managers?

• What do limited partners need to consider when designing and
  managing portfolios?

• How one can determine the funds' economic value to help
  addressing the questions of 'fair value' under IAS 39 and 'risk'
  under Basel II or Solvency II?

• Why is monitoring important, and how does a limited partner
  manage his portfolio?

• How the portfolio's returns can be improved through proper
  liquidity management and what to consider when
  over-committing?

• And, why uncertainty rather than risk is an issue and how a
  limited partner can address and benefit from the fast changing
  private equity environment?

Beyond the J Curve takes the practitioner's view and
offers private equity and venture capital professionals a
comprehensive guide making high return targets more realistic and
sustainable. This book is a must have for all parties involved in
this market, as well as academic and students.

Auteur

About the authors DR THOMAS MEYER studied computer science at the Bundeswehr Universität in Munich followed by doctoral studies at the University of Trier. He also holds an MBA from the London Business School. After 12 years in the German Air Force he worked for the German insurance group Allianz AG in Corporate Finance and M&A with particular focus on Japan, and as the regional Chief Financial Officer of Allianz Asia Pacific in Singapore. Over the last years Thomas has been responsible for the creation of the European Investment Fund's risk management function. The focus of his work is the development of valuation and risk management models and investment strategies for venture capital fund-of-funds. tmeyer.mba33@london.edu PIERRE–YVES MATHONET holds a Master of Science cum laude in Finance from London Business School and a Master of Science magna cum laude in Management from Solvay Business School, Brussels. He is also a Certified European Financial Analyst. He worked as an investment banker in the technology groups of Donaldson, Lufkin & Jenrette (DLJ) and Credit Suisse First Boston, and previously, for the audit and consulting departments of PricewaterhouseCoopers. He is currently heading the venture capital activities within the Risk Management and Monitoring division of the European Investment Fund. pmathonet.mifft2000@london.edu Together, as risk managers, the authors are responsible for a portfolio of nearly two hundred private equity funds with more than 2.5 billion committed and almost 5 billion under management.

Texte du rabat
BEYOND THE J CURVE Thomas Meyer & Pierre-Yves Mathonet In recent times, venture capital and private equity funds have become household names, but so far little has been written for the investors in such funds – the socalled 'limited partners'. Beyond the J Curve provides an innovative toolset for such limited partners to design and manage portfolios tailored to the dynamics of this market place, going far beyond the typical and often-simplistic recipe to 'go for top quartile funds'. 'The authors of Beyond the J Curve have taken on the ambitious project of analysing the difficult and controversial area of valuing fund portfolios. Their innovative and integrated approach opens up the framework within which these valuations are practised by investors, and offers alternatives. Beyond the J Curve is a thorough and pioneering contribution to the current debate.'
— Javier Echarri, Secretary General, European Private Equity & Venture Capital Association (EVCA) 'In this groundbreaking book, Meyer and Mathonet provide both the theoretical underpinnings for, and practical realities of, building a successful portfolio of private equity investments. It is an invaluable resource for any institutional investor who is constructing or managing a portfolio of investments in private equity and/or venture capital.'
— Mark D. Wiseman, Chairman, Institutional Limited Partners Association (ILPA) 'Beyond the J Curve is right on target, giving the private equity investment manager much-needed guidance on how to put private equity into a modern diversified investment portfolio. It provides practical, comprehensive advice on traversing the often risky waters of venture and private equity investing and provides a thorough and advanced introduction. It should become a 'musthave' reference.'
— Jesse E. Reyes, Managing Director, Reyes Analytics

Résumé
In recent times, venture capital and private equity funds have become household names, but so far little has been written for the investors in such funds, the so-called limited partners. There is far more to the management of a portfolio of venture capital and private equity funds than usually perceived. Beyond the J Curve describes an innovative toolset for such limited partners to design and manage portfolios tailored to the dynamics of this market place, going far beyond the typical and often-simplistic recipe to 'go for top quartile funds'. Beyond the J Curve provides the answers to key questions, including:

• Why 'top-quartile' promises should be taken with a huge pinch of salt and what it takes to select superior fund managers?
• What do limited partners need to consider when designing and managing portfolios?
• How one can determine the funds' economic value to help addressing the questions of 'fair value' under IAS 39 and 'risk' under Basel II or Solvency II?
• Why is monitoring important, and how does a limited partner manage his portfolio?
• How the portfolio's returns can be improved through proper liquidity management and what to consider when over-committing?
• And, why uncertainty rather than risk is an issue and how a limited partner can address and benefit from the fast changing private equity environment?
  Beyond the J Curve takes the practitioner's view and offers private equity and venture capital professionals a comprehensive guide making high return targets more realistic and sustainable. This book is a must have for all parties involved in this market, as well as academic and students.

Contenu

List of Boxes xv

Acknowledgements xvii

Disclaimer xviii

Part I Private Equity Environment 1

1 Introduction 3

1.1 Routes into private equity 3

1.2 The limited partner's viewpoint 4

1.3 The challenge of venture capital fund valuation 4

1.4 Hard figures or gut instinct? 5

1.5 Managing with fuzzy figures 5

1.6 Making the grades 5

1.7 Outline 7

2 Private Equity Market 9

2.1 Funds as intermediaries 10

2.2 The problem of predicting success 15

2.3 Broad segmentation of investment universe 18

2.4 Private equity market dynamics 22

2.5 Conclusion 26

3 Private Equity Fund Structure 27

3.1 Key features 29

3.2 Conflicts of interest 38

3.3 Finding the balance 38

4 Buyout and Venture Capital Fund Differences 41

4.1 Valuation 43

4.2 Business model 44

4.3 Deal structuring 45

4.4 Role of general partners 45

5 Funds-of-funds 47

5.1 Structure 47

5.2 Value added 48

5.3 Costs 51

5.4 Private equity investment program…