Post on 12-Aug-2020
22nd November 2004 pwc
Private Equity ClubGlobal Private Equity Village
Private Equity ClubGlobal Private Equity Village
2Global Private Equity Village PricewaterhouseCoopers
Agenda
• Introduction – Mark Pugh• Performance Measurement Survey 2003 – Damian Regan• Convergence of Valuation Guidelines – Vikram Krishna• Private Equity Investment Activity, Funds Raised and
Performance Data – Keith Arundale• Discussion
22nd November 2004 pwc
BVCA Private Equity and Venture Capital Performance Measurement Survey 2003
Damian Regan
BVCA Private Equity and Venture Capital Performance Measurement Survey 2003
Damian Regan
4Global Private Equity Village PricewaterhouseCoopers
BVCA Private Equity and Venture Capital
Performance Measurement Survey 2003
• How can contributors to the Survey obtain further details on benchmarking to support internal requirements?
• Can the standard published BVCA benchmark data be applied to the requirements of the Global Investment Performance Standards (GIPS)?
5Global Private Equity Village PricewaterhouseCoopers
BVCA Survey data
Existing data does not show/confirm:• Which investment stage the contributors funds are in• Narrower benchmarks for the funds (e.g. UK Mid MBO rather
than Mid MBO)• Which firms are within each stage / confirmation of nature of
stages• Appropriate benchmark for the vintage years (e.g. UK Mid MBO) Survey Issues• Overload of data analysis• Confidentiality (cannot identify the funds)
6Global Private Equity Village PricewaterhouseCoopers
Our Response
• PwC International Survey Unit (Belfast) & PwC Investment Management Group (Assurance)
• Discussion with BVCA (through Keith Arundale)• Agreed limited scope procedures• Addressee use only, not for public use• Raise requests with BVCA for future surveys
7Global Private Equity Village PricewaterhouseCoopers
Limited Scope Procedures
Overall Performance – Investment Stage*• Confirm the investment house’s funds within their investment
stage (e.g. UK Mid MBO, Non Tech)• Identify range of companies within investment stage (e.g. UK Mid
MBO, Non Tech)• Provide net performance figure for identified fund in benchmark • Provide net performance figure for required benchmark (e.g. UK
Mid MBO, Non Tech)*Confidentiality level = 5 houses
8Global Private Equity Village PricewaterhouseCoopers
Limited Scope Procedures
Overall Performance – Vintage Year*• Confirm the investment house’s funds within their vintage year• Provide net performance figure for the identified funds• Provide net performance figure for required benchmark (e.g. UK
Mid MBO, Non Tech)*Confidentiality level = 5 funds
9Global Private Equity Village PricewaterhouseCoopers
Engagement Issues Arising
1) Confidentiality – procedures / house & fund numbers2) Net not Gross Returns 3) Interpreting data4) Use of our report = internal only
10Global Private Equity Village PricewaterhouseCoopers
Global Investment Performance Standards
• Private Equity Guidelines adopted 1 Dec 2003 / effective 1 Jan 2006
• Incorporates BVCA fair valuation methodology• Purpose = to increase transparency and comparability of
presenting returns
11Global Private Equity Village PricewaterhouseCoopers
GIPS Requires
7.A.1. Private Equity investments must be valued according to the GIPS Private Equity Valuation Principles.
7.A.2. Firms must calculate the annualized Since Inception Internal Rate of Return (SI-IRR).
7.A.20. Firms must present both the Net-of-fees and Gross-of-fees annualized SI-IRR of the composite for each year since inception.
7.A.23. If a benchmark is used, the cumulative annualized SI-IRR for the benchmark that reflects the same strategy and Vintage Year of the composite must be presented for the same periods for which the composite is presented. If no benchmark is shown, the presentation must explain why no benchmark is disclosed.
12Global Private Equity Village PricewaterhouseCoopers
Questions for BVCA
1) Gross and Net returns2) Splitting out of investment stages (e.g. Mid MBO to UK Mid MBO)3) Splitting out of vintage years (e.g. UK Mid MBO)
22nd November 2004 pwc
Convergence of Valuation GuidelinesVikram Krishna
Convergence of Valuation GuidelinesVikram Krishna
14Global Private Equity Village PricewaterhouseCoopers
Agenda
• Existing valuation options under BVCA and EVCA guidelines• IASB stance• EVCA – BVCA working together• Definition of fair value• Convergence to fair value reporting• Specific examples• Conclusion
15Global Private Equity Village PricewaterhouseCoopers
Existing valuation options under BVCA and
EVCA guidelines
BVCA (revised 2003 guidelines)• Cost in initial period after acquisition (up to 12 months)• Fair Value (incl. illiquidity discounts for quoted investments)• If Fair Value is not possible: cost less impairment
EVCA • Cost less impairment at 25% discounts• Fair Value (incl. illiquidity discounts for quoted investments)
16Global Private Equity Village PricewaterhouseCoopers
IASB stance
The IASB's reasons for allowing investments to be excluded from their scope (under IAS 28 and IAS 31) provided the fair value option is used, were that:
• measuring such investments at fair value through profit or loss would produce more relevant information than using equity accounting;
• and that fair value information is often readily available because fair value measurement is a well-established practice in these industries.
17Global Private Equity Village PricewaterhouseCoopers
Comparison to property investments
Property Valuations are based on the RICS valuation guidelines and the fair valuation guidelines are thorough, accepted in the marketplace and applied consistently across the Industry.
However existing valuation guidelines i.e. BVCA and EVCA are notapplied with the same rigour or consistency.
18Global Private Equity Village PricewaterhouseCoopers
EVCA and BVCA working together
BVCA and EVCA drafted valuation guidelines together in Oct-Nov 2004 with a launch of a consultation paper in Dec 2004
The valuation guidelines:• provides guidance for fair valuation framework; and• attempts to meet the requirements of fair valuation for statutory
reporting, namely IFRS and US GAAP.
“Investments should be reported at fair value at reporting date”
19Global Private Equity Village PricewaterhouseCoopers
Defining fair value
“Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction”.
Does not assume:• investee Company is saleable at the reporting date;• current shareholders intend to sell their holdings in the near
future; • there is a forced transaction, involuntary liquidation or distressed
sale
20Global Private Equity Village PricewaterhouseCoopers
Convergence to fair value reporting
•FV reporting driven by:– pressure from accounting standards esp. US GAAP and IFRS– the needs of institutional investors for investment opportunities and
financial reporting
• Launch of new international funds are increasingly under US GAAP or IFRS and only domestic funds adopt local GAAP
• New guidelines are user friendly and are IFRS / US GAAP compliant for standard MBO valuations but not fully IFRS compliant
21Global Private Equity Village PricewaterhouseCoopers
Specific examples of non-compliance (1)
(1) Start-up company
• Revised guidelines state use of cost or carrying value less impairment. IFRS says Fair Value.
• Our belief that it is possible to value a start-up and estimate fair value per the original business plan
• FV changes would occur if milestones (in the business plan) werepassed and an educated investor would increase fair value if therisk features (per the business plan) were passed
• Vice versa, if the external or internal market would collapse then fair value would diminish dramatically
22Global Private Equity Village PricewaterhouseCoopers
Specific examples of non-compliance (2)
(2) Mezzanine investments
• Debt investments normally classified as HTM• Mezzanine investments are classified as financial assets FVTPL
or AFS and not HTM• Advantages are for the investment to be valued in total instead of
separately valuing other attached financial instruments iewarrants
23Global Private Equity Village PricewaterhouseCoopers
Specific examples of non-compliance (3)
(3) Quoted investments
• Per IFRS quoted investments should be valued at BID price• Industry prefer valuation at BID price less discounts for thinly
traded stock or restricted stock• Conceptually correct as market price is not fair value if BID price
cannot be achieved• But resist applying discounts on generic basis at multiples of 5%• Big 4 will revisit current IFRS treatment with IASB but will it be
accepted?
24Global Private Equity Village PricewaterhouseCoopers
2005 and beyond……..
• Consultation paper will be reviewed by a joint EVCA-BVCA committee on continual basis to assess implementation difficulties
But valuation guidelines must be applied consistently across allPE investments to enable full credibility in the marketplace….
…….2005 - NOW OVER TO THE PRACTICAL IMPACT !
22nd November 2004 pwc
Update on Private Equity Investment Activity, Funds Raised and Performance Data
Keith Arundale
Update on Private Equity Investment Activity, Funds Raised and Performance Data
Keith Arundale
26Global Private Equity Village PricewaterhouseCoopers
PE Investment, Funds Raised and
Performance Data
Global private equity investment and funds raised overviewEuropean private equity and venture capital overviewUK Performance Measurement data
27Global Private Equity Village PricewaterhouseCoopers
The World View: Full Year 2003
Main Headlines• Approximately $115 billion of private equity and venture capital was invested
globally in 2003 – an increase of 33% on the 2002 level of $86 billion.• More than $82 billion of funds were raised globally in 2003 – down 12% from $93
billion in 2002.Sub Headlines• Technology investments totalled approximately $38 billion in 2003 – 33% of total
investment.• Around $21 billion was invested in expansion stages in 2003 – down 15% on 2002
levels.• Approximately $73 billion was invested globally in buyouts in 2003 – an increase
of 61% on 2002.* Based on 2002 GDP, from World Bank Development Indicators – $32,300 billion
Note: Historical data has been revised based on amendments published in 2003. Data converted to US dollars using a fixed exchange rate
from 1998 obtained from oanda.com.
28Global Private Equity Village PricewaterhouseCoopers
The World View: Investment and Fund
Raising Trends
70
124
192
103 86
115133
154
262
177
93 82
0255075
100125150
175200225250275300
1998 1999 2000 2001 2002 2003
InvestmentsFunds Raised
(US$b)
Source: The PricewaterhouseCoopers/Venture Economics/National Venture Capital Association MoneyTree™ Survey / Buyout Newsletter / Private Equity Analyst / CVCA Annual Statistical Review / EVCA Yearbook / AVCJ Guide to Venture Capital in Asia / Venture Equity Latin America / SAVCA Private Equity Survey / IVC Online
Note: The data for Eastern Europe, Middle East & Africa and Central & South America has been up-weighted to take account of under-reporting in these regions
Investment: Compound average growth rate = 10.41%Funds Raised: Compound average growth rate = -9.16%
Note: Israel did not raise any funds in 2002, but returned $145 million
29Global Private Equity Village PricewaterhouseCoopers
The World View: Top 20 Countries (based
on investment)
North America• 1. USA (1)• 13. Canada (10)
Middle East & Africa• 15. South Africa (16)• 16. Israel (14)
Central & South America
52%
1%2%
30%15%
Asia Pacific3. Japan (6)6. Australia (11)8. Korea (8)9. China (21)14. India (13)17. Indonesia (17)18. Singapore (20)
Note: Individual country data is not available for Central and South America.
Note: Figures in brackets indicate their position in 2002
2. United Kingdom (2)4. France (3)5. Italy (4)7. Germany (5)10. Spain (12)11. Netherlands (7)12. Sweden (9)19. Finland (18)20. Denmark (24)
Europe
30Global Private Equity Village PricewaterhouseCoopers
The World View: Top 20 Countries (based
on investment)
Country Ranking Investment Value
Funds Raised
Country Ranking Investment Value
Funds Raised
1. USA 59.20 43.94 11. Netherlands 1.28 2.40 2. UK 15.86 17.56 12. Sweden 1.19 2.52 3. Japan 7.19 1.36 13. Canada 1.00 1.35 4. France 4.98 2.39 14. India 0.86 0.26 5. Italy 3.56 2.27 15. South Africa 0.82 1.11 6. Australia 2.93 0.20 16. Israel 0.77 - 7. Germany 2.91 1.40 17. Indonesia 0.65 - 8. Korea 2.84 0.27 18. Singapore 0.54 0.10 9. China 1.67 0.34 19. Finland 0.52 0.18 10. Spain 1.57 1.03 20. Denmark 0.48 0.25
US $ Billion
31Global Private Equity Village PricewaterhouseCoopers
The World View: Cumulative Investments
and Funds Raised (98-03)
Source: The PricewaterhouseCoopers/Venture Economics/National Venture Capital Association MoneyTree™ Survey / Buyout Newsletter /Private Equity Analyst / CVCA Annual Statistical Review / EVCA Yearbook / AVCJ Guide to Venture Capital in Asia / Venture Equity Latin America /SAVCA Private Equity Survey / IVC Online
Note: *The data for Eastern Europe, Middle East & Africa and Central & South America has been up-weighted to take account of under-reporting in these regions
Region Investment Value
Funds Raised Overhang
Global 690.63 901.45 210.82
North America 411.93 600.32 188.39
Europe 182.96* 221.62 38.66 Asia Pacific 64.23 58.15 -6.08
Middle East & Africa 13.25* 11.86* -1.39
Central and South America 18.26* 9.50 -8.76
US $ Billion
32Global Private Equity Village PricewaterhouseCoopers
The World View: 1st Half 2004
Main Headlines• At least $48.1 billion of private equity and venture capital was invested in
the three main regions of the world in the first half of 2004. • These regions generally account for 95% of all investment globally.• Approximately $38.0 billion of funds were raised in the three main regions
of the world in the first half of 2004.• These regions generally account for 98% of all funds raised globally.Sub Headlines• Approximately $3.9 billion was invested in early stage companies in the
three main regions of the world in the first half of 2004.• Around $28.3 billion was invested in buyouts in the three main regions of
the world in the first half of 2004.
Note: Data converted to US dollars using a fixed exchange rate from 1998 obtained from oanda.com.
22nd November 2004 pwc
European Private Equity & Venture CapitalFrom the EVCA Private Equity Survey conducted by Thomson Venture
Economics and PricewaterhouseCoopers
European Private Equity & Venture CapitalFrom the EVCA Private Equity Survey conducted by Thomson Venture
Economics and PricewaterhouseCoopers
34Global Private Equity Village PricewaterhouseCoopers
€29 billion invested in Europe in 2003
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
1995 1996 1997 1998 1999 2000 2001 2002 2003
€ m
BuyoutVenture Capital
Source: EVCA / TVE / PwC private equity survey
35Global Private Equity Village PricewaterhouseCoopers
Amount Invested by Country 2000 - 2003
1,8
87
1,1
99
4,4
35
2,1
85
3,2
87
6,9
26
96
8
1,7
22
2,5
06
2,6
26
5,8
51
10
,38
5
1,0
92
1,3
37
2,4
81
3,0
34
4,2
46
13
,53
9
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
UKFrance Italy
GermanySpain
Netherlands
2001 2002 2003
€m
Source: EVCA / TVE / PwC private equity survey
1,40
4
642
704
943
435
2,58
8
Venture Capital
36Global Private Equity Village PricewaterhouseCoopers
Europe: Sources of New Funds in 2003
Insurance Companies
8.7%
Fund of Funds16.4%
Banks21.5%
Corporate Investors
4.8%
Pension Funds19.4%
Private Individuals3.2%
Other17.3%
Academic Institutions
1.5%
Capital Markets0.3%
Government Agencies
6.8%
Government Agencies11.1%
Capital Markets0.1%
Academic Institutions1.6%
Other4.3%
Private Individuals6.0%
Pension Funds16.3%
Corporate7.3%
Banks26.3%
Fund of Funds13.1%
Insurance Companies13.8%
2002
2003
2002
2003
37Global Private Equity Village PricewaterhouseCoopers
Europe: Expected Allocation of Funds Raised
Buyout76.5%
High Tech Expansion
3.5%
Non-High Tech Expansion
10.8%
High Tech Early Stage5.9%
Non-High Tech Early Stage
2.2% Other1.2%
Other2.7%
Non-High Tech Early Stage
2.1%
High Tech Early Stage7.9%
Non-High Tech Expansion
13.4%
High Tech Expansion
7.5%
Buyout66.3%
2003
In 2003 :
Expected allocation to Venture Capital: 22% or €6.0 bn
Expected allocation to High-Tech: 9.4% or €2.5 bn
2002
Source: EVCA / TVE / PwC private equity survey
38Global Private Equity Village PricewaterhouseCoopers
Funds Raised and Investment - Europe
0
10,000
20,000
30,000
40,000
50,000
60,000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
€m
Funds RaisedInvestment
Source: EVCA / TVE / PwC private equity survey
39Global Private Equity Village PricewaterhouseCoopers
Evolution of European Private Equity Activity by amount Q1 2002 to Q2 2004INDEX Q1 2002 = 100
0
50
100
150
200
250
300
350
400
Q12002
Q22002
Q32002
Q42002
Q12003
Q22003
Q32003
Q42003
Q12004
Q22004
Funds Raised
Investment
Divestment
Source: EVCA/Thomson Venture Economics/PricewaterhouseCoopers
Note: The percentage change mentioned refers to the evolution of the current quarter vs the previous quarter
+28%
+27%
-19%
40Global Private Equity Village PricewaterhouseCoopers
Evolution of Private Equity InvestmentActivity by Amount Q1 2002 to Q2 2004INDEX Q1 2002 = 100
0
50
100
150
200
250
300
Q12002
Q22002
Q32002
Q42002
Q12003
Q22003
Q32003
Q42003
Q12004
Q22004
Total InvestmentEarly StageExpansionBuyout
-16%
+27%
+44%
+47%
Source: EVCA/Thomson Venture Economics/PricewaterhouseCoopers
Note: The percentage change mentioned refers to the evolution of the current quarter vs the previous quarter
41Global Private Equity Village PricewaterhouseCoopers
Evolution of Private Equity DivestmentActivity by Amount at Cost Q1 2002 to Q2 2004INDEX Q1 2002 = 100
0
50
100
150
200
250
300
350
400
450
Q12002
Q22002
Q32002
Q42002
Q12003
Q22003
Q32003
Q42003
Q12004
Q22004
Total Divestment
Trade SaleWrite-Off
Sale to VC/Financial Institutions/Repay. Pref Shares/Other
-58%
+5%
+51%
-19%
Source: EVCA/Thomson Venture Economics/PricewaterhouseCoopers
Note: The percentage change mentioned refers to the evolution of the current quarter vs the previous quarter
22nd November 2004 pwc
UK Performance Measurement DataFrom the BVCA Performance Measurement Report
prepared by PwC
UK Performance Measurement DataFrom the BVCA Performance Measurement Report
prepared by PwC
43Global Private Equity Village PricewaterhouseCoopers
UK PE Summary of Performance by
Investment Stage (to 31.12.03)
-18.1
-25.1
-12.5 -10.6-8.2
2.7
16.9
2.96.7 8.49.1
-3.7
2.6
-3.4
12.217.7
13.615.317.4
12.5
19.5
14.210.212.3
-30
-20
-10
0
10
20
30
40
2003 Three Years Five Years Ten Years
Early Development Mid MBO Large MBO Generalist Total
% pa
Source: BVCA / PwC performance measurement report 2003
44Global Private Equity Village PricewaterhouseCoopers
UK PE Performance by Sub Sector
(to 31.12.03)
2.610.2
14.2
-24.4
-10.3-6.5
5.90.5
9.017.614.7
3.510.9 11.212.3
-18.0
-40.0
-20.0
0.0
20.0
40.0
60.0
80.0
2003 Three Years Five Years Ten Years
Total Technology UK Non UK
% pa
Source: BVCA / PwC performance measurement report 2003
45Global Private Equity Village PricewaterhouseCoopers
Summary of Private Equity Performance
versus Principal Comparators
12.3
2.6
10.214.2
-6.8
-1.1
6.1
17
-2.8
1.96.4
20.9
-10
0
10
20
30
40
2003 Three Years Five Years Ten Years
Total Private Equity FTSE All-Share WM Pension Fund Universe
% pa
46Global Private Equity Village PricewaterhouseCoopers
Since Inception Performance by Sub Sector
4.7
9.8 9.7
16.414.1
12.6
7.4
14.513.613.8
0.0
5.0
10.0
15.0
20.0
Ear
ly
Dev
elop
men
t
Mid
MB
O
Lar
ge M
BO
Gen
eral
ist
Tot
al UK
Non
UK
Tec
hnol
ogy
Non
-T
echn
olog
y
% pa
47Global Private Equity Village PricewaterhouseCoopers
Summary: Key points for European PE
• Europe’s significance in the world private equity market continues to increase
• Despite so-called “wall of money”, European funds available are currently around 1 ½ years’ supply
• Amount of investments in 2003 was the second highest ever, mainly due to buyouts
• Portfolio rationalisation and write-offs now largely complete• Investment trends for 2004 are encouraging – both for buyouts and
early stage• Reasonably active M&A market and some successful IPOs• PE as a whole continues to outperform the principal comparators
over the medium to longer term, but early-stage and tech funds are lagging behind.