Private Markets at Universität St. Gallen | Flashcards & Summaries

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Lernmaterialien für Private Markets an der Universität St. Gallen

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TESTE DEIN WISSEN

Growth of PM AuM

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  • Private markets AuM grew by 170% in past decade, while global public market capitalization has grown by roughly 100% in same period 
  • In 2019: PM AuM grew by 10%
  • Megafunds ($5bn+) increasingly dominate buyout fund-raising - > more than half of total in 2019 
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TESTE DEIN WISSEN

Main Segment of PM

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TESTE DEIN WISSEN

PE -> Blackstone & KKR

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TESTE DEIN WISSEN

2020 – Year of disruption?


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TESTE DEIN WISSEN

Industry: 

Despite fundraising volatility in the first half of 2020, total AUM across private markets grew by 5.1% in 2020 to another all-time high of $7.3 trillion

Private equity segment: 

  • AuM increases in most asset classes -> especially with PE accounting for the largest growth
  • PE funds raised declined year on year due to an apparent short-term discontinuity in the early months of the pandemic, but the pre-pandemic pace of fundraising returned by Q4
  • PE purchase multiples have kept climbing, now higher than bf GFC of 2009 (hence not only money in market but also valuation increase with high multiples)
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TESTE DEIN WISSEN

Swiss PM

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TESTE DEIN WISSEN

- growing with the largest share in PE (61%) in 2020. Private Equity constitutes an important part of the Swiss economy -> roughly 0.5% of Swiss GDP 

  • Swiss Pension funds are the most important capital investor in private funds. BUT While pension sector is large, private markets are underweighted
  • Alternative Investments were only 6.7% of the swiss pension fund asset allocation in Q2 2021 & only 1.74% was actually allocated to PE from these 6.7%!
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TESTE DEIN WISSEN

Private Markets Vs. Public Markets

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Public Markets (e.g. equity, S&P 500)

Private Markets (e.g. private equity)

Market

Centralized

Over-the-counter (OTC) -> relationship, negotiation

Transaction Costs

Small

Enormous (due to lack of transparency)

Valuation

Easy, objective, in real time

Difficult, subjective, available infrequently

Liquidity

High

Low (longer lock-in period for money invested)

Transparency

High

Low

Horizon

Immediate

Long term (around 10 years)

Contracts

Standard

Complex (funds and investors, company and investors etc.)

Investors

Retail and Institutional

Institutional

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TESTE DEIN WISSEN

From the investor perspective -> diff btw PE and Public


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TESTE DEIN WISSEN
  • Regulation
  • Diversification
  • Risk
  • Taxes
  • Returns

(costs/fees, valuation, liquidity and transparency not so relevant)

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TESTE DEIN WISSEN

From company perspective -> diff btw PE and Public

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  • -Costs vs. Benefits of being listed / private and use LBOs

Listed investments have lower capital costs and more visibility but more disclosing and reporting requirements, which might not be attractive for very innovative companies

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TESTE DEIN WISSEN

Definition of PM: 

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TESTE DEIN WISSEN

Most of the investments in private markets: via specialized funds

  • closed-end funds
  • GP : team of professionals
  • LPs:  investors
  • set up for a limited lifetime
  • capital commitments
  • capital calls /drawdowns
  • 10-year horizon
  • active investments
  • limited reporting
  • investor cannot withdraw their money on demand , no control rights over investments, exit decisions
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TESTE DEIN WISSEN

capital commitments


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TESTE DEIN WISSEN

investors commit ex-ante to providing a given amount of capital over a fixed period of time 


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TESTE DEIN WISSEN

capital calls (or “draw downs”)


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TESTE DEIN WISSEN

the quantity, amount and timing of capital calls (or “draw downs”) are uncertain at inception (the fund asks for capital as investment opportunities arrive)

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TESTE DEIN WISSEN

LPA

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TESTE DEIN WISSEN

The legal structure and key terms of fund define in the LIMITED PARTNERSHIP AGREEMENT (LPA) e.g. lifetime, fees, distribution waterfall etc.)

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TESTE DEIN WISSEN

AuM in Private Markets Assets 

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7.3 trillion AuM worldwide in different types of private market assets (vs 47 trillion $ in Mcap of US market)


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Beispielhafte Karteikarten für deinen Private Markets Kurs an der Universität St. Gallen - von Kommilitonen auf StudySmarter erstellt!

Q:

Growth of PM AuM

A:
  • Private markets AuM grew by 170% in past decade, while global public market capitalization has grown by roughly 100% in same period 
  • In 2019: PM AuM grew by 10%
  • Megafunds ($5bn+) increasingly dominate buyout fund-raising - > more than half of total in 2019 
Q:

Main Segment of PM

A:

PE -> Blackstone & KKR

Q:

2020 – Year of disruption?


A:

Industry: 

Despite fundraising volatility in the first half of 2020, total AUM across private markets grew by 5.1% in 2020 to another all-time high of $7.3 trillion

Private equity segment: 

  • AuM increases in most asset classes -> especially with PE accounting for the largest growth
  • PE funds raised declined year on year due to an apparent short-term discontinuity in the early months of the pandemic, but the pre-pandemic pace of fundraising returned by Q4
  • PE purchase multiples have kept climbing, now higher than bf GFC of 2009 (hence not only money in market but also valuation increase with high multiples)
Q:

Swiss PM

A:

- growing with the largest share in PE (61%) in 2020. Private Equity constitutes an important part of the Swiss economy -> roughly 0.5% of Swiss GDP 

  • Swiss Pension funds are the most important capital investor in private funds. BUT While pension sector is large, private markets are underweighted
  • Alternative Investments were only 6.7% of the swiss pension fund asset allocation in Q2 2021 & only 1.74% was actually allocated to PE from these 6.7%!
Q:

Private Markets Vs. Public Markets

A:

 

Public Markets (e.g. equity, S&P 500)

Private Markets (e.g. private equity)

Market

Centralized

Over-the-counter (OTC) -> relationship, negotiation

Transaction Costs

Small

Enormous (due to lack of transparency)

Valuation

Easy, objective, in real time

Difficult, subjective, available infrequently

Liquidity

High

Low (longer lock-in period for money invested)

Transparency

High

Low

Horizon

Immediate

Long term (around 10 years)

Contracts

Standard

Complex (funds and investors, company and investors etc.)

Investors

Retail and Institutional

Institutional

Mehr Karteikarten anzeigen
Q:

From the investor perspective -> diff btw PE and Public


A:
  • Regulation
  • Diversification
  • Risk
  • Taxes
  • Returns

(costs/fees, valuation, liquidity and transparency not so relevant)

Q:

From company perspective -> diff btw PE and Public

A:
  • -Costs vs. Benefits of being listed / private and use LBOs

Listed investments have lower capital costs and more visibility but more disclosing and reporting requirements, which might not be attractive for very innovative companies

Q:

Definition of PM: 

A:

Most of the investments in private markets: via specialized funds

  • closed-end funds
  • GP : team of professionals
  • LPs:  investors
  • set up for a limited lifetime
  • capital commitments
  • capital calls /drawdowns
  • 10-year horizon
  • active investments
  • limited reporting
  • investor cannot withdraw their money on demand , no control rights over investments, exit decisions
Q:

capital commitments


A:

investors commit ex-ante to providing a given amount of capital over a fixed period of time 


Q:

capital calls (or “draw downs”)


A:

the quantity, amount and timing of capital calls (or “draw downs”) are uncertain at inception (the fund asks for capital as investment opportunities arrive)

Q:

LPA

A:

The legal structure and key terms of fund define in the LIMITED PARTNERSHIP AGREEMENT (LPA) e.g. lifetime, fees, distribution waterfall etc.)

Q:

AuM in Private Markets Assets 

A:

7.3 trillion AuM worldwide in different types of private market assets (vs 47 trillion $ in Mcap of US market)


Private Markets

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