London Business School Coller Institute of Private Equity

COLLER INSTITUTE OF PRIVATE EQUITY UPDATE - JUNE 2012

25 June 2012

The Coller Institute of Private Equity held its 5th Annual Private Equity Findings Symposium on 28 and 29 May 2012. A diverse audience from industry and academia participated in some fascinating discussions on issues affecting the industry.

The opening keynote speech was delivered by Alexander Ljungqvist, NYU Stern who provided some new insights into the behaviour of public vs private firms. In his presentation, he highlighted that private firms are investing more than public firms and reacting better to investment opportunities.

Edmund Truell, The Pension Corporation, spoke on the current disruptive nature of markets in terms of high volatility and a substantial volume of forced asset sales brought about by new regulation such as Basel III and Solvency II. He also provided some candid remarks about how private equity has reacted to opportunities during the financial crisis.

Some of these comments were followed in the first panel of the day, which discussed private equity’s nexus to the financial services industry. This was a lively debate on a number of aspects, including the role private equity could play in filling the gap left by banks in the lending market.

This panel was followed by a discussion on team turnover at GPs, challenging the dogma that LPs don’t want any material change in investment team composition. The panel highlighted that the reality is much more complex. While LPs typically do not want complete chaos in terms of departures, they actually support some change. For example, it is important to keep junior staff motivated by ensuring there is some turnover at the top level.

We continued our tradition of having one of our keynote speakers from a background not necessarily focused on private equity but with some highly relevant insights for practitioners. Our keynote speaker this year was Lynda Gratton, London Business School, who spoke on the future of work and how major trends such as technology, demographics, low carbon and globalisation can affect business. She provided some highly pertinent views on how firms can look for talent, how to seek out growing industries and how to look at future customers.

The final panel on the day looked at the exit environment in PE. While the dearth of exits in recent years has been well reported, the panel provided some views on how to manage an exit process and the importance of running different tracks – IPO, strategic sale and secondary buyout. The panel also how discussed how demanding an exit process actually is, placing a huge strain on the management team.

The second day involved the presentation and discussion of a range of new academic papers in the field of private equity. This day was well attended by both academics and practitioners and we continue to be very pleased that practitioners are taking a strong interest in academic research.

A number of research topics were discussed over the course of the day. The first two papers looked at issues affecting financial vs strategic buyers. The first paper was presented by Matt Rhodes-Kropf of Harvard University. This research looked at the economic factors that drive either financial or strategic buyers to dominant positions in M&A activity. The second, presented by Uli Hege of HEC Paris, looked at the bidding behaviour of strategic buyers and private equity in asset sales. This research is featured in Private Equity Findings Issue 6.

The second session involved Morten Sorensen, Columbia Business School, presenting an innovative research paper on how to value private equity by calibrating a portfolio choice model for institutional investors. This paper was of strong interest and relevance to the LPs in the room. Following this presentation, Adair Morse, Chicago Booth School of Business, presented her research on activist investors and performance in PE and VC funds. This research uses a dataset of SWF investors and endeavours to identify links between activism and performance.

The third session looked at performance issues in private equity. Firstly, Chris Higson, London Business School, presented his research on industry performance. Using a dataset from Cambridge Associates, he demonstrates significant industry outperformance over the public markets. Refer Private Equity Findings Issue 6 for further coverage. Berk Sensoy, Ohio State University, then presented his paper on whether PE managers earn their fees. This research looks at whether higher compensation or lower managerial ownership is associated with lower net-of-fee performance, with some interesting results.

The final paper was presented by Bilge Yilmaz, Wharton University of Pennsylvania. This research looks at information asymmetries between PE firms and potential portfolio companies and shows how adverse selection problems can be solved by using earn-out provisions.

Many of the papers and presentations from the Symposium are now available for download from our research library at http://www.collerinstitute.com/Research.

We also held video interviews with a number of the panellists and speakers from the Symposium. These are also available on our website at http://www.collerinstitute.com/News.

For those who attended the Symposium, we sincerely thank you for your participation. It is critical to our agenda that we include representatives from all aspects of the industry in the debate on issues critical to the industry’s evolution. Thank you also to all those who provided feedback on the event. Congratulations to Ivo Wadewitz who won the draw to be awarded a complimentary copy of International Private Equity and a free ticket to next year’s Symposium.

We are currently working on our 2012/13 events programme and we will advise details shortly.

Issue 6 of Private Equity Findings and v2 of Findings App

Issue 6 is now available for download at http://www.collerinstitute.com/Research/Findings.

The latest edition features research on:
•    Private equity and the resolution of financial distress;
•    Why brand matters;
•    Private equity performance;
•    The importance of corporate culture in emerging markets private equity;
•    Bidding behaviour of private equity firms vs strategic acquirors;
•    The impact of IPOs on innovation activity.

As always, we appreciate your comments on the articles via the Your Perspectives section of our website or separately via email to collerpe@london.edu. The best comments will receive a free copy of International Private Equity.

We have also recently launched v2 of the Private Equity Findings App. This App provides access to all editions of the publication in a format friendly to iPads and other tablet devices. V2 features several functionality improvements:

•    Ability to view in portrait as well as landscape format;
•    Ability to access research papers referred to in the articles;
•    Clippings functionality, allowing users to clip articles for future viewing;
•    Sharing functionality, enabling users to share articles to contacts via email or social media;
•    Ability to provide feedback and comments.

The App is available for download from iTunes and the Coller Institute website (http://collerinstitute.com/Research/Findings).

 
New Events App

The Coller Institute has launched a new App purely for its events programme. The App was first made available for the Symposium and has the following features:

•    Access the full events schedule;
•    Automatic updates on new events and changes to existing events;
•    Book your place at events;
•    Link to our website to download presentation material;
•    Interact with others and discuss events via hashtags.

The App is available from iTunes. A web based App is also available for other mobile devices.

If you would like any further information about the Coller Institute of Private Equity, please email us at collerpe@london.edu.

Regards,
Hans Holmen | Executive Director
Coller Institute Of Private Equity

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