Why and how
to invest in
private equity
1
This document provides a summary only of the subject matter covered.
The summary is not intended to provide any advice and should not be relied on as a substitute for
professional advice.
MTE21553
Contents
Acknowledgements
2
Introduction and background
3
Why invest in private equity?
7
Approaches to portfolio construction
12
Practical aspects of investment
16
Due diligence
20
Monitoring the portfolio and measuring performance
25
2
Acknowledgements
The Australian Venture Capital Association would like to thank
the European Private Equity & Venture Capital Association, the
EVCA Investor Relations Committee and Alex Bance and Michael
Henningsen of UBS Warburg for their valuable contribution to their
special paper on why and how to invest in private equity. The paper
has with kind permission been adapted for the private equity
industry in Australia and forms the basis of this document.
The Australian Venture Capital Association would also like to thank
Kon Mellos and Al Donald of Freehills for their valued contribution
to this paper.
3
Introduction and background
Introduction
The private equity industry in Australia has grown dramatically over
the past decade. Private equity is now a major asset class of the
alternative investment portfolio of many institutional investors.
This paper considers the characteristics of private equity
investment and the methodologies for constructing a private equity
portfolio and implementing a private equity investment strategy.
Definition of private equity
Private equity investing may broadly be defined as investing
predominantly in unlisted companies through a negotiated process.
Private equity investment is typically a transformational, value
added, active investment strategy. Private equity managers need
to have a specialised skill set. These skills differ between buy out
and venture investing, as they focus on different stages of the life
cycle of a business.
Private equity investing covers the broad categories described
below, whether mad