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FINANCIAL AND LEGAL INFORMATION
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Business description
1.3
BUSINESS DESCRIPTION
1.3.1
THE PRIVATE EQUITY BUSINESS
WHAT IS PRIVATE EQUITY?
Private equity consists of investing in unlisted private companies
with the intent of developing them and/or improving their
business performance.
In the private equitymodel, a teamof professional fundmanagers
takes a stake in private companies, usually with a specific
investment thesis and a detailed value creation plan. In general,
private equity investors are able to ensure that the interests
of all stakeholders in a deal are aligned, thus ensuring that the
companies they invest in aremanaged in the best interests of the
Company’smanagement team, the limited partnerswho invest in
the private equity funds, and the private equity fund managers
themselves.
The private equity ownership model can be applied to a wide
range of company types, sizes, sectors and geographies. Private
equity ownership plays a key role at many stages in a company’s
history: a change in the scale of a business, a required change
in ownership, a change in strategic direction, or a change in the
structure andoperations of a business. The common factor is that
all investee companies have unrealised potential. Private equity
investment aims to unlock this potential through specific value
creation plans.
Private equity performance is generallymeasured and evaluated
in terms of multiples of the amounts invested, and the internal
rate of return (IRR).
ADVANTAGES OF PRIVATE EQUITY
Given the structure of private equity ownership, this model
presents a number of advantages that facilitate value creation
and the realisation of capital gains over time:
largeuniverseof target companies offeringmanyopportunities;
time and resources to study and assess investment
opportunities, and to analyse and value the target companies
best-positioned to grow and capitalise on the secular trends
within those industries, aswell as toanalyse the risks of potential
investments and how best to mitigate them;
committed, long-term ownership, that is not concerned with
short-term performance targets, but focused on achieving
broad and long-term value creation in line with an investment
thesis and with precise value creation objectives;
the ability to modify business plans or change management
teams as required in order to achieve objectives;
clear accountability between company executives and
shareholders, combinedwith a precise roadmap and incentive
measures directly linked to value creation; and
the ability to access debt markets and to partially fund
acquisitions through debt.
DISADVANTAGES OF PRIVATE EQUITY
The due diligence process in private equity can translate
into high costs. Exploiting the vast and unregulated set of
opportunities that private companies represent requires
resources, infrastructure and expertise.
The average private equity investment cycle leads a significant
part of performance to be skewed towards the last years of the
life of a fund. Accordingly, fund performancemust be assessed
over the long term.
Restricted access: investing in private companies is restricted
to a small group of investors. The traditional way of investing
in private equity is through a Limited Partnership or an FCPR.
These vehicles are reserved for institutional investors,
i.e.
financial institutions and other large, sophisticated investors,
able to commit substantial capital and to forego a return on
their investment for a relatively long period of time. Limited
partnerships and private equity funds require investors to
commit a minimum amount, usually €10m or more, which is
“locked up” for several years. They are commonly structured as
ten-year vehicles, duringwhich time the investor has no access
to the funds invested.
LISTED PRIVATE EQUITY FUNDS: PROVIDING
BROADER ACCESS TO THE ASSET CLASS
Listedprivate equity (LPE) companies, such as Altamir, are public
companies that invest in a portfolio of predominantly private
enterprises. Shares of LPE companies are bought and sold on
stock exchanges in the same way and alongside other public
industrial and financial companies.
Listed private equity provides the same underlying returns on
investment as unlisted institutional private equity, but in away that
stock market investors can access without minimum investment
requirements or lock-up periods. Other benefits of LPE investing
include exposure to multiple vintages, and capital being put to
work immediately (rather than relying on “capital calls” when
investments are identified, as is the case in traditional private
equity). The shares of listed private equity companies are often
priced at a discount to the underlying NAV (an advantage or a
disadvantage depending on the perspective taken).
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REGISTRATION DOCUMENT
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ALTAMIR 2016