Private Equity (PE) funds are normally organized in a partnership. This partnership (General Partner - GP) jointly raises money from investors (Limited Partners - LPs). The ultimate goal of a GP is to create value with the acquisition, development, and sale of portfolio companies.
Besides taking value creation levers into account, the GP has a tremendous influence on the fund performance with its risk-taking in multiple aspects. Thus, there is no comparable risk measure in PE. For example, a GP can increase the riskiness of a deal with a higher financial leverage or more aggressive assumptions about the top-line growth of the underlying business.
The goal of this bachelor thesis is to evaluate the main value drivers in PE and compare risk measures with the latest advances of other fields, such as public markets.
Table of contents
List of figures
List of abbreviations
1 Introduction
2 Cash flow, return and risk characteristics
2.1 Value added by General Partners
2.1.1 Financial engineering
2.1.2 Operational engineering
2.1.3 Governance engineering
2.1.4 Fees and compensation charged by General Partners
2.2 How General Partners impact risk-taking
3 Evaluating risk on fund level
3.1 Risk factors
3.1.1 Shortfall risk
3.1.2 Funding risk
3.1.3 Liquidity risk
3.2 Research on historical risk frameworks
3.3 Relevance of traditional finance approaches
3.4 Measuring risk in return
4 Risk perceived by investors
4.1 Significance of track records in Private Equity
4.2 Relevance of recent advances in behavioral finance
4.3 Identifying proxies for perceived risk
4.3.1 The Anzoni/Zeisberger methodology
4.3.2 Application on Private Equity
5 Conclusion
References
- Quote paper
- Philipp Handel (Author), 2017, Risk-Taking in Private Equity. Evaluation of the main value drivers in PE and Comparison of risk measures, Munich, GRIN Verlag, https://www.grin.com/document/383578
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