Executive summary - Udo Bullmann

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The fund structuring arrangements for EU private equity funds is typically like this 29 :• Domicile of the manageroFor funds raised:Many LBO managers are based in London, as the City marketplace is probably the mostcosmopolitan location in Europe for finding a wide range of institutional investors, andspecific taxation schemes are especially attractive for managers splitting location and placingfunds off-shore. But other locations such as Paris are also booming.oFor investments:A large number of LBO management companies wish to remain close to the companiesthey invest in, in order to keep a close eye on them, which means that many of private equitymanagement companies investing largely in French companies remain in France, as long asthey stay in the company (2-3 years) and the same applies to the other continental EUcountries. Among the biggest 8 Member States in terms of private equity investments, thesituation is the following29 European Commission: "Developing European Private Equity", Report of the Alternative Investment ExpertGroup, July 2006, p.2654
25PE investments: location of managers(2005)20€ bn1510manager location (€bn)50UKFranceGermanySpainThe NetherlandsItalyDenmarkSwedenSource: EVCA/PWC/Thomson Financial2.11 LBOs’ major strategiesPrivate equity as an asset class is subdivided into a number of sub-categories including:• Venture capital• Expansion (or growth) capital• Buy-outs or buy-insEach market segment corresponds to specific company profiles or situations as describedabove.Specific economic function of Venture capital: Venture capital investment involves risks,as capital is invested in new technologies and/or, unproven business strategies. Venturecapital investment fosters innovation by financing young companies with innovative conceptsand generates high-skilled jobs. Venture capital investment creates new employment and newwealth. The venture capital industry represents a transmission channel of privately availablecapital into sectors of the economy that have no access to the public capital markets.Specific economic function of Expansion capital: Expansion stage investment involves insome ways less risk than venture capital, because investments are made in existing, generallyprofitable, companies. Expansion capital can provide capital for new premises, plant andequipment and product or service development needed for growth and in addition support theinternationalisation process and the adoption of advanced governance and management skills.Specific economic function of Buy-out capital: Buy-out investment involves less risks forthe management companies and investors as investment is made in mature establishedcompanies where there is the possibility to create value, mainly through reorganising ofbusinesses or restructuring operations. In the best cases, this is effectively what is takingplace, where for example buy-outs help solving corporate succession situations or finance55
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HEDGE FUNDSAND PRIVATE EQUITY -A CR
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The need for long-term investmentTh
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On the basis of a coherent analysis
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The pension fundsWhere does all the
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3. The target company is merged wit
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Societies’ response - current nat
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In most of the case studies, PE inv
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huge tax advantages when the rate o
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known to bank supervisors. Those da
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provide transparency with respect t
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The demand for change and better re
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industrial policy, focusing on know
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AcknowledgementsThis report has bec
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The situation we are facing now is
Page 30 and 31: market to promote the knowledge-eco
Page 32 and 33: Our desire to separate the single s
Page 34 and 35: Typically a single strategy HF oper
Page 36 and 37: In most European countries, fund ma
Page 38 and 39: It should also be signalled that:
Page 40 and 41: Institutional investorsCurrent and
Page 42 and 43: leverage in order to benefit from s
Page 44 and 45: 1.6 The costs, the management fees
Page 46 and 47: only remaining way to boost returns
Page 48 and 49: A majority of hedge funds have limi
Page 50 and 51: Our analysis is that these concerns
Page 52 and 53: Average annual returnsTremont HF in
Page 54 and 55: 1.11. Tendency of crowdingDespite t
Page 56 and 57: • Corporate governance:“In the
Page 58 and 59: Onshore FoHFsCountryUnitedKingdomGe
Page 60 and 61: ItalyBank ofItaly•Specializedasse
Page 62 and 63: 1.14 Societies’ response - curren
Page 64 and 65: Investments are often in individual
Page 66 and 67: employed 21 . Leverage effect expla
Page 68 and 69: Investments are sold off to other c
Page 70 and 71: Private Equity: European trends in
Page 72 and 73: time because of the longer holding
Page 74 and 75: Bain CapitalPartners 74.7 9Thomas H
Page 76 and 77: Sources of new funds raised (2005)C
Page 78 and 79: The private equity manager virtuall
Page 82 and 83: ownership transfers. But buyout cap
Page 84 and 85: equity value chain. The main areas
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Page 88 and 89: UCITS (Undertakings for Collective
Page 90 and 91: Article 49Within the framework of t
Page 92 and 93: open and secure retail markets and
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Page 96 and 97: In its Communication on worker info
Page 98 and 99: est practices, promoting innovative
Page 100 and 101: - Work to ensure more consistent an
Page 102 and 103: destabilising the financial markets
Page 104 and 105: & LBOs invest. It increases financi
Page 106 and 107: In particular, incumbent managers o
Page 108 and 109: long-term competitiveness of the ac
Page 110 and 111: It also leads to further weakening
Page 112 and 113: If HFs and LBOs have brought uncert
Page 114 and 115: the social responsibilities of comp
Page 116 and 117: areas after recapitalisation 11 . I
Page 118 and 119: Furthermore, the funds in many case
Page 120 and 121: privatised with a view to stimulati
Page 122 and 123: asset stripping, and the offering o
Page 124 and 125: dividend to Valentia.The second pub
Page 126 and 127: ***The three country case studies o
Page 128 and 129: eturns well below those achieved by
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investment funds - in the UK alone
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4.2 The issue of pension fundsThe p
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One year earlier the British Financ
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the fund exceeds the highest value
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5.3 Short sellingHistorically, hedg
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global financial markets. In 1998 t
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implications associated with the li
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The classic source of leverage is l
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I talk to have got a prayer in the
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The main reason for the lack of inf
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7. The need for change to ensure a
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clearly destructive must be prevent
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European Union.Part III is going to
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2. Market transparency - a common i
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International Settlements in Switze
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3.2 The main beneficiaries of regul
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within jurisdictions with enhanced
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In our view, if we want to promote
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investors.The EC should set up an i
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Alternative investment fund manager
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widely differing impacts of PE acti
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estrict investment to specific asse
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Clearly the governance authorities
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paid. There is therefore a need for
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5. Our immediate proposalsIn the pa
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isks are honestly and clearly commu
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Corporate governance provisionsLong
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ANNEX 1 - Case studiesANNEX 1 - Cas
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1. Company description ............
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AA1. Company descriptionThe Automob
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Autoteile Unger1. Company descripti
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Bulgarian Telecommunications Compan
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Deutsche Börse1. Company descripti
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DIS1. Company descriptionThe DIS De
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DT-GROUP1. Company descriptionDT Gr
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(2005 €610m) resulting in an EBIT
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FRANS BONHOMME1. Company descriptio
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Friedrich Grohe AG1. Company descri
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3. LBO exit (secondary LBO, IPO, li
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industrial sector level. A compromi
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Linde1. Company descriptionLinde is
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2.5 Protection of minority sharehol
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marketing outside Germany and to bo
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2.3 Effects on job creation, invest
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Peguform1. Company descriptionThe h
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PICARD1. Company descriptionPicard
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STORK1. Company descriptionThe indu
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TDC1. Company descriptionTDC is the
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TELECOM ITALIA GROUP1. Company desc
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2.5 Corporate governance and econom
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same way like some institutional in
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Viterra1. Company descriptionViterr
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Glossary 1Absolute returns: The ret
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Hurdle rate: A rate of return that
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Stock option: An individual's right
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