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Private Equity Primer - Meketa Investment Group

Private Equity Primer - Meketa Investment Group

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Published by AsiaBuyouts
Private Equity Primer by the Meketa Investment Group.

Founded in 1978, Meketa Investment Group is a full-service private market advisory and investment consulting firm. The firm originated by providing investment strategy and systems advice to the Harvard Management Company (The Harvard University Endowment). Since 1978, Meketa Investment Group has grown steadily, and today consults for approximately $250 billion in institutional assets forover 60 clients. The firm has offices in Boston and San Diego.

For an article discussing this document and/or more private equity info, please visit: http://www.asiabuyouts.com

Source: http://www.meketagroup.com/assets/reports/meketareport10.pdf
Private Equity Primer by the Meketa Investment Group.

Founded in 1978, Meketa Investment Group is a full-service private market advisory and investment consulting firm. The firm originated by providing investment strategy and systems advice to the Harvard Management Company (The Harvard University Endowment). Since 1978, Meketa Investment Group has grown steadily, and today consults for approximately $250 billion in institutional assets forover 60 clients. The firm has offices in Boston and San Diego.

For an article discussing this document and/or more private equity info, please visit: http://www.asiabuyouts.com

Source: http://www.meketagroup.com/assets/reports/meketareport10.pdf

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Published by: AsiaBuyouts on Jul 17, 2009
Copyright:Attribution Non-commercial

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11/19/2013

pdf

 
 
M
EKETA
I
NVESTMENT
G
ROUP
 
P
RIVATE
E
QUITY
P
RIMER
 
K:\COMPUTER\WWW\Web-Research-PE-Primer.doc
 
1
O
VERVIEW
 
This primer describes the asset class commonly known as Private Equity. It attemptsto answer the types of questions Trustees would be likely to ask when considering aninvestment in this area.Historically, private equity investments have often been grouped in a larger categoryof investments called Alternative Investments. Alternative Investments were definedto be any investments other than publicly traded stocks and bonds. In addition toprivate equity investments, alternatives often included real estate, hedge funds,portfolio insurance schemes, trading and arbitrage programs, long/short portfolios,and various derivative-based programs.This primer is limited to private equity investments, which Meketa Investment Groupdefines to be investments in companies that are privately owned. Further, this primeronly describes the characteristics of the asset class itself. It does not suggest a targetallocation to the asset class, nor does it specify how to implement an investmentprogram in private equities. These issues are client specific, and must be addressed bythe decision-makers in each group.
W
HAT IS
P
RIVATE
E
QUITY
?
Private equity investments are investments in privately held companies. Private equityinvestments are generally structured in the form of partnerships that consist of ten totwenty equity investments in individual companies.Like investments in publicly traded common stocks, investments in private equityfunds provide long-term investors with a stake in a generative asset, i.e., an equityposition. However, unlike publicly traded stocks, private equity funds are not priceddaily by a market. Thus, the apparent price volatility is lower and the interim returncorrelation to public equities is low.Today, private equity investments come in many forms, including venture capitalfunds, buyout/LBO funds, mezzanine debt funds, and international private equityfunds. All of these strategies produce significantly different returns than traditionalinvestment classes, and exhibit different fundamental characteristics from each other.A fund should be invested across a variety of types of private equity investments tomoderate risk.
 
 
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2
The market value of privately held companies is comparable to that of publicly tradedcompany shares. However, there are many more private companies than public ones,as the following data illustrate. Thus, the private equity market provides a large arenafor investing.
Number of U.S. Companies1998
1,180,20710,194
Private CompaniesPublic Companies
 
Market Value of U.S. Companies1998
$10 trillion$10 trillion
Private CompaniesPublic Companies
 
Source: U.S. Statistical Abstract, Dun & Bradstreet
 
 
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3
W
HO
I
NVESTS IN
P
RIVATE
E
QUITY
?
Endowments, corporations, high-net-worth individuals, and retirementfunds
Investors seeking higher returns and enhanced equity diversification,beyond that available through the public stock market
Long-term investors who are less concerned with liquidity
Investors willing to accept greater or different risks
Private Equity Committmentsfrom 1995 through 1999
Corporations17%Family Offices12%Pension Funds39%Endowments10%Other13%Banks9%
 
Source: Venture Economics, December 2000

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