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Hedge Fund

&

Private Equity

Team Number - 7

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Indian Scenario and PE & HF

Source of Job Creation

Source of Finance

For Expansion Requires Money More number of SMEs are coming

For Economice Growth

Lack of capital is barrier of growth

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ORIGIN OF HEDGE FUNDS - A BRIEF HISTORY

Alfred Winslow Jones, a sociologist, Fortune magazine investigating fundamental

and technical research on forecasting

the stock market

Setup an investment fund with himself asgeneral partner

Incentive fee amounting to 20% of any realized profits orgains with no fixed fees.

Fortune magazine article, in 1966,branded the market-neutral strategy that Jones designed as a hedge fund.

Definition :- any unregistered, privately-offered,managed pool of capital for wealthy, financiallysophisticated investors .

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Trading strategies

Equity,

Fixed-income

Mathematical algorithms

Algo-Trades

Techniques :

Short-selling

ArbitrageHedging

Leverage

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RISKS IN HEDGE FUNDS

Minimally regulated and least transparent &requires a lot of due diligence work.

Managers do not disclose information on a regular

basis (in order to protect their trading strategies).

Performance reporting is voluntary in the

industry, making industry statistics less reliable.

Retain the best brains in investment management.

Encourage greater risk-taking in order to ensure

that the fund is productive.

High investment minimums

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Private Equity- An Introduction

Private equity funds are investment companies that, do not hold publicly-traded securities.

Instead, they normally seek equity stakes (that is, partial ownership) in

private companies..

Structure of PE Funds

InstitutionalInvestors

PE firm

Company A Company B Company c

Fund 1 Fund 2

High Net worthIndividual

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What Private Equity offers ??? To the Company

Strong capital base for future expansion

Accelerated growth possible because of PEs value addition

Viable alternative to expensive debt

Good for small size companies looking to access capital

Helps improves corporate image & profile

Useful for companies which have long gestation projects as PE investors canoften take a long term (3-6+ years view)

Provides a valuation benchmark for future fund raise events

Funds may bring expert financial / capital structuring advise

To the Investors

Ability to realize High growth & High Returns

Identify potentially high value companies at an early stage

Ability to acquire meaningful stakes (10-100%) in companies which is typically

difficult in listed companies

Option of having multiple exit routes such as IPO, secondary sale, strategic sale,

sale back to promoters, etc.

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Key Ingredients of a PE Deal

Which Investor?

What valuation?

What deal structure?

What investor rights?

What exit terms?

What due diligence?

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Stages and Nature of Investments

Maturity of the Company

Aster Infrastructure

INX Media

JustDial

Lemon Tree

Meru Cabs

Suzlon Energy

Apollo Hospitals

Allcargo Global

M&M Finance

Nagarjuna Const.

Reid & Taylor India

Aditya Birla Telecom

ExcelsoftPunjab Tractors

Sanghvi Movers

Flextronics

Gokaldas

Sigma Electric

Intelenet Global

Spice Jet

DLF Assets Buying out other

investors

Replacement

Capital Usually associated

with a change in

management.

Transaction is

typically leveraged

Buyout

Product or service

is ready

Aim is to launch it

in the market

Early Stage Directed at growth

and expansion of the

enterprise

Expansion Stage

May include

project financing,

one-time

opportunities etc.

Special Situation

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What PE Investors Look For?

Overall sector attractivenesspotential for strong future growth

Reasonable valuation

Companys ability to deliver consistent earnings growth

High return ratioshigh return on capital employed and return onequity are the most significant parameters for investors

Enunciation of clear exit opportunity

Reputed promoters, strong franchise and a top class managementteam

Clear enunciation of a business strategy/future plans

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Key Challenges

Buyout Challenges

Focus on Current Scenario

IPO an attractive option

Cautious for fresh Investments

Willing to invest in sound companies

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Annual deal value in Asia Pacific ($ Billion)

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Sector-wise Deal Activity CY11