Anglo-Saxon (US)

Private Equity General and limited partners:

04 August 2020 17:48
European format
- Banking directive : financial system has to be organized
with a right balance of efficiency and stability
- Services directive : any kind of financial institutions
starting to operate in the financial system has to
receive an approval by local a supervisor
Players:
1. Banks, as banks are universal and they can deliver any
kind of service in Europe;
2. Closed-End funds that are in perfectly designed to be a
private equity investor; and last;
3. Investment firms
- Limited partners must have 99% of shares and
the general partners must have 1% of shares.
- Limited partners or just simply LPs are pure
investors, that means they can not manage the
venture capital fund they just simply put money
and they are limited liable. Limited liable means
the worst case for them would be to lose 100% of
money, hopefully not, but no more.
- General partners, or just simply, GPs must
manage the vehicle, so they are not pure
investors. They are the managers, and they are
fully liable

Close end funds: can invest only the amount of money

received by investors.(NO DEBT)
AMC (Asset management company) .
- AMC: it is just simply a group of people advising
investors and managing the money of the investors.
- Anyone can be a shareholder in an AMC, banks, govts
and private.
Funds
- Funds can be open-end or closed-end. Funds are open-
end when investors can enter, and they can exit from
Formats:
the fund whenever they want.
1. Venture capital funds
- Funds are closed-end when investors can invest only at
2. Banks
the beginning of the fund, and they can exit only at the
3. SBIC : public-private partnership, to stimulate
end.
venture capital.
Investors
4. Corporate Venture : generate good project that
can be used by the corporation itself to increase
Timeline
the level of the value of the corporation.
1. Fundraising : up to one and a half years the asset
5. Business Angels :
management company has at its own disposal to try to
convince investors to commit their money in the
SBIC is a way in which a private investor can create a
closed-end fund.
joint venture with a public admin, but the private
2. Draw down period : The draw down period is a period
investor has the possibility to manage the vehicle and
in which the asset management company has the
to receive more profit than 50% of the share. In case of
possibility to ask investors to give a percentage of their
losses, losses are equally distributed 50% and 50%.
commitment.
UK - Markets
Revenues
1. The management fee is the amount of money the AMC
1. Venture Capital Trusts- try to combine retail
company receives every year from the closed-end fund.
investors with an ideal private equity
2. The carried interest is a fixed percentage the AMC is
going to receive, calculated on the difference between
A trust is a vehicle in which someone named a settlor
the final IRR of the funds, and a hurdle rate, which is a
can insert assets. The management of these assets is
sort of threshold, negotiated at the beginning.
given to someone else, and this someone else is made
3. This formula of the carried interest is mentioned as
the trustee, and the trust has to generate profit and
waterfall mechanisms
benefits that are created in favour of a beneficiary
4. Without catch-up : if the carried interest is calculated
on the difference between the final IRR and hurdle
rate. with catch-up : if the current interest is calculated
directly on the entire amount of the final IRR.