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November 04, 2011
Creating and Deriving Value
in Private Equity
1. What is Private Equity?
2. Fund Structure
3. Stakeholders
4. Fund Life Cycle
5. The Value Drivers
6. The Value Proposition
Outline
2
3
What is Private Equity?
It’s Different!
Private
Equity
Patient Capital
Exists for Investors
Driven by Self Regulation
Partnering with Portfolio Companies
4
Fund Structure - Unified
International InvestorsRest of World
Mauritius
India
Indian Investors
Mauritius Fund
India Fund
Sponsor
Trustee
Investment Manager
Portfolio Company 1 Portfolio Company 2 Portfolio Company 3
5
Stakeholders
Identifying the Stakeholders
Investors
Sponsor
Trustee
Investment Manager
Others – Regulators, Advisors, Society
etc.
6
Fund Raising Stage
Investment Stage
Divestment Stage
Fund Life Cycle
6
Limited Life Vehicles – Strategy and Timing matters
7
The Value Drivers – 1
Value Drivers – Fund Raising Stage
People & Track Record
Fund Terms and Strategy
Fund Documentation
Investor Profile
Regulations
8
The Value Drivers – 2
Value Drivers – Investment Stage
Four Factor Analysis – Promoter - Business -
Terms - Exit
Investment Process
Entry Valuation
Portfolio Monitoring
Portfolio Valuation
Reporting
9
The Value Drivers – 3
Value Drivers – Divestment Stage
Liquidity and Exit Opportunities
Timing
Divestment Process
Relationships
10
The Value Drivers - 4
The Value Drivers – The Core
People
Passion
Processes
Relationships
Trust
11
The Value Proposition -1
The Value Proposition – Investors
Risk and Reward
Risk Mitigation
Responsible Investing
Good Corporate Governance
Co-invest opportunities
12
The Value Proposition -2
The Value Proposition – Investment
Manager
High ROE Business
Steady Income
Share in Profits
Building a Partnership
Brand and Track Record
13
The Value Proposition - 3
The 2-20 Game Decoded INRCapital Contribution received from Investors on Day 1 100
Of which: Management Fees paid for one year @ 2% pa 2Expenses of the Fund paid 8Invested in Equity Shares of a Portfolio Company 90
Sale Proceeds on divestment of the equity investment on Day 366 200DISTRIBUTION WATERFALL
Capital Contribution redeemed to Investors 100Hurdle paid to Investors @ 8% p.a. 8Catch up paid to the Investment Manager (IM) @25% of Hurdle 2Total Distributions made before Carry Payouts 110Balance Available for distribution 90Shared 80:20 - 80% to Investors 72Shared 80:20 - 20% to the IM as Carry 18Total Income Distribution to Investors (8+72) 80Total Income Distribution to the IM (2+18) 20
14
The Value Proposition - 4
The Value Proposition – Portfolio
Companies
Risk Capital
Focus on Value Accretion
Strategy & Business Development
Best Practices & Improved Governance
HR Matters
Finance & Leveraging Relationships
15
The Value Proposition - 5
The Value Proposition – Society
Encouraging Entrepreneurship
Support to Sunrise Sectors
Growth Capital & PPP
Economic Growth & Job Creation
Better Governance
Responsible Investing
Mitigating Systemic Risks
16
Private Equity – A MAD World
It is all about Making A Difference!
AND
To make a difference, you need to walk that extra mile and on that extra mile, you seldom have company!
17
THANK YOU
For more information, contact
Rupa VoraInfrastructure Development Finance Co. Ltd. Naman Chambers, C-32, G-BlockBandra Kurla Complex, Bandra (East),Mumbai 400 051Email: [email protected]
