This course will use the case method to provide a comprehensive overview of private equity finance. The objective of this course is to survey the private equity...More >>
This course will use the case method to provide a comprehensive overview of private equity finance. The objective of this course is to survey the private equity industry and to provide students with an understanding of the origination, valuation, execution, monitoring, and realization of private equity transactions and of the process of investing in private equity funds. The course will include a series of lectures designed to teach specific skills and concepts used in the practice of private equity and case discussions through which those skills and concepts will be illustrated and utilized.
Private equity, including venture capital, growth investing, distress, and leveraged buy-outs, has grown from less than $5 billion in assets under management in 1980 to over $1 trillion today and is therefore a field worthy of study. Its emergence as a significant global asset class has elevated the industry in the public consciousness and led to a debate about its effect on portfolio companies, contribution to systemic risk, and compensation and taxation practices. The dramatic growth of assets under management by private equity firms has also led to a compression in investment returns, making the tasks of executing successful private equity transactions and selecting private equity funds increasingly challenging.
The course will be divided in two parts. The first section will examine the industry from the perspective of the private equity firms who invest in and manage portfolio companies (referred to as the general partners or "GP"s). While this section will address all significant segments of the GP universe, including venture capital, growth investing, distressed investing and leveraged buy-outs, the main focus will be on the LBO industry. In this section, we will discuss the techniques used by private equity firms to originate, diligence, value and execute transactions as well as how these PE firms seek to add value to their portfolio companies and eventually exit these investments. Through the cases, we will analyze several private equity transactions and situations through which we will apply these concepts and techniques.
The best way to understand how a leveraged buyout works is to construct an LBO model. The first section of the course will include a lecture on LBO modelling as well as several assignments through which students will learn how to build an LBO model step by step.
The second section of the course will examine the private equity industry from the perspective of the institutions that invest in private equity funds (the limited partners or "LP"s and their consultants or "gatekeepers"). We will survey the LP universe (pension funds, endowments, fund-of-funds, sovereign wealth funds, and secondary funds). We will analyze the investment track records of GPs, identify the factors that lead to strong performance, and review the process for PE fund raising, due diligence and selection. We will also discuss the terms of fund agreements and the current state of LP/GP relationships.
COR1-GB.2311 - Foundations of Finance
FINC-GB.2302 - Corporate Finance