Private Equity Questions

CFA Level II Alternative Investments
#1

Questions in relation to Private Equity:

  1. In VC/LBO’s what exactly are monitoring fees (which are paid to the GP)

  2. In relation to the PE Multiples used in valuation. When do we want smaller or larger multiples - PIC, DPI, TVPI etc? Do we always want a larger DPI (realised multiple)? etc etc

  3. What Corporate governance terms/economic terms are best used to acknoledge whether conflicts of interests are being managed between the VC firm and the portfolio company?

Thank you in advance!

#2

Anybody able to help?

#3

  1. Monitoring fees - daily fund monitoring. Probably wrapped with management fees in real PE funds.

  2. DPI’s realized, so if you’re an LP, bigger the better.

  3. You need to read this from the CFAI book.

Your questions are all addressed with the CFAI material, one way or another. Probably also the reason why no one responded :).

#4

Aether, thanks I appreciate your response.

I couldn’t find the definition for monitoing costs in the text, they just listed it. In relation to 3) I know all the terms I just want to know if given this terms in a table or something which ones we would pull out to help analyse an aligning of interest. I’m guessing Earn-outs would be one?

#5

Earn-outs, board seats, preferred shares, etc. Don’t remember the entire list, but I know it’s in that reading.

#6

Thank you Aether for you help