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AVCJ Malaysia
Data Presentation: The Truth Behind the Numbers
Bowen White Associate Director Global Private Equity Initiative
The Global Private Equity Initiative (GPEI)
INSEAD’s Private Equity “Think-tank”
Leverage school’s global presence and 1,800+ alumni
in Private Equity
Global and Asia-focused research & content
Created a suite of bespoke publications over its 8-year
history
Agenda
1. Performance, Growth & Diversification through 2016
2. Macro, Valuations & PE Activity
3. LP Allocation Trends
Annualized
Return
Private
Equity
Public
Equity
10-year 8.8% 5.2%
5-year 11.8% 11.0%
-5%
0%
5%
10%
15%
20%
2001 2003 2005 2007 2009 2011 2013 2015
Private Equity Public Equity
Out-performance through the Cycle
Private Equity vs Public Equity, through Q4 2016
1. Performance, Growth & Diversification through 2016 Source: INSEAD-Pevara, Bloomberg
5-year
Return
10-year
Return
Behind the Numbers
The Global Financial Crisis did not sink the ship
Pre-Crisis vintages produced ~1.4x MoM (median funds)
Top Quartile Managers
Best of the best (top 5%) consistently add ~1.0x to median
money multiples
Private Equity is not an Index
Time, resources, commitment is a prerequisite
1. Performance, Growth & Diversification through 2016 Source: INSEAD-Pevara
706 741 757 863 956
1227
1687
2251 2254 2446
2758
3043 3277
3741 3882
4169
4457
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Secondaries Co-investment Mezzanine Natural Resources
Infrastructure Real Estate Distressed PE Private Equity
Private Equity Private Capital
1. Performance, Growth & Diversification through 2016
6.3x
Strong Performance drives Growth & Diversification of Assets Under Management ($billions)
Source: Preqin
Behind the Numbers
Convergence between PE and VC
Large VC funds & PE’s increased focus on technology,
mega-rounds
Large Hybrid PE Managers
Driving growth in Private Equity Alternatives
Defining a Competitive Edge
With growth comes commoditization
1. Performance, Growth & Diversification through 2016
The Macro Picture
2. Macro, Valuations & PE Activity
Behind the Numbers
Which Wonderland?
Benign – A well-distributed Global GDP forecast @ 2.7%,
benign inflation, de-levaraged developed markets
Headwinds – Geopolitical & Policy (US) Uncertainty, Chinese
Debt
Liquidity – records reached in 2017
$1.5 trillion on S&P 500 balance sheets
$541 billion in Private Equity dry powder (April)
U.S. Leveraged loan issuance hit a record $202 billion (Q1)
Source: World Bank, Preqin, PNC 2. Macro, Valuations & PE Activity
Impact on PE Valuations
4.8 5.9
4.5
3.3 4.3 4.5 4.6 4.7
5.3 5.4 5.2
8.1
9.3
8.3
6.6
8.4 8.2
7.9
8.8
9.6
10.7 10.2
0
2
4
6
8
10
12
2006 2008 2010 2012 2014 2016
Equity Debt*
15.5
12.8
9.8
13.1 13.8
13.4
12.2 12.6
14.0
16.6 17.0
0
2
4
6
8
10
12
14
16
18
2006 2008 2010 2012 2014 2016
Purchase Price
US Mid-market LBOs APAC PE-Backed M&A
Purchase Price Multiples (EV/EBITDA) – Liquidity-fueled Inflation
* Debt and other capital; Source: PNC, Bain 2. Macro, Valuations & PE Activity
Impact on VC Valuations
VC Mega-Rounds – A Sign of the Times
13% 21% 24%
18% 11%
63% 61% 51%
37%
28%
15% 10% 11%
14%
12%
7% 4% 7%
14%
15%
2% 2% 4% 12%
16%
2% 3% 5%
18%
1996-2000
2001-2005
2006-2010
2011-2015
2016-2017
$1000+ $250-1000 $100-250 $50-100 $10-50 $0-10
Source: Preqin 2. Macro, Valuations & PE Activity
0
50
100
150
200
250
300
350
2002 2004 2006 2008 2010 2012 2014 2016
Capital Calls Distributions
Record Divestment, Anaemic Investment
Capital Calls – Distributions (US$ billions)
Investment
Supercycle
Exit
Supercycle
Q3’16 Q2’11 Q3’12
Source: INSEAD-Pevara 2. Macro, Valuations & PE Activity
LP Allocation Trends
3. LP Allocation Trends
0
500
1000
1500
2000
2500
2000 2002 2004 2006 2008 2010 2012 2014 2016
> 10 $bn 5-10 $bn 2.5-5 $bn 1-2.5 $bn <1 $bn
LP Allocation Trends
Private Equity AUM – by Fund Size
3. LP Allocation Trends Source: Preqin
Behind the Numbers
Calpers Reduces LP Relationships
Targets a cut in PE relationships from 100 (2015) to 30 (2020)
Power shift to LPs (GP-LP Model)
Lower fees & expenses, moved aggressively into co-
investments
Hybrid Manager Model
Opportunity to deepen/consolidate relationships with LPs
3. LP Allocation Trends
0.5
1.0
1.5
2.0
2.5
Mega Funds All Other Funds
Top Quartile 3rd Quartile 2nd Quartile Bottom Quartile .
Fund Size, Risk-Return
Mega Funds protect on the downside, All Other Funds produce outperformers TVPI quartiles, global funds, vintage years 2001-2015
3. LP Allocation Trends Mega funds: fund size greater than $2.5 billion; Source: INSEAD-Pevara
Behind the Numbers
Average Returns are the Same
Mega Funds: 1.49x TVPI… All Other Funds: 1.47x
Allocating to All Other Funds
Requires resources and expertise for LPs to identify
outperformers (it is expensive).
Mega Funds Indicative of PE Industry Institutionalization
Compliance and risk management baked into large PE firms,
policies and guidelines on how to conduct business.
3. LP Allocation Trends
-5%
0%
5%
10%
15%
20%
2001 2003 2005 2007 2009 2011 2013 2015
Global Asia China
Geographic Comparison
Global versus Asia, China through Q4 2016
Annualized
Return Global Asia
10-year 8.8% 7.8%
5-year 11.8% 10.7%
5-year
Return
10-year
Return
3. LP Allocation Trends Source: INSEAD-Pevara, Bloomberg
Q&A
Food for thought:
Does cyclicality matter? Should you try to time the market?
If so, how should your strategy adjust?
Q&A
THANK YOU