The Capital Overhang Issue in Private Equity Funds Explored
One of the key trends affecting companies of all sizes is the notable capital overhang of private equity funds – the large amount of money raised by firms that remains to be uncalled. Studies show that the capital overhang significantly affects large funds amounting to $1 billion and over. The good news is that smaller funds, are less affected however remain at risk.
The Knowledge Group is producing a two-hour Live webcast which will explore the issues and concerns surrounding the capital overhang & private equity funds. Speakers will provide their expert opinions to help companies and investors navigate through potential pitfalls. The discussion will include:
• Fundamentals and Updates on Capital Overhang in Private Equity Funds (Large & Small)
• Impact on Companies, Investors, Buyout and Private Equity Industries
• Best Practices and Investment Opportunities
• Strategies for Investment Risk Management
• And answers to questions submitted by you!
Enroll in this course today by clicking the “Register” button below. Space is limited and significant discounts apply for early registrants.
Dr. Eric Warner , Partner and Head of Investor Relations,
- The level of dry powder for the global buyout industry peaked at just under $500bn in 2008 immediately following the Lehman collapse (according to Preqin). Since then it has declining at a rate of 12-15% annually as private equity funds invest capital in new deals, falling to $370bn at the end of 2011, with further falls projected for the coming year. Like the famous quip of Mark Twain, rumours of the PE industry’s death are greatly exaggerated.
- Over 50% of the overhang occurs in the mega funds (>$3.5bn); the bulk of PE funds are well below this, and have always had a more modest overhang position to contend with. That said, the rate of decline in overhang has also been greatest among the mega funds.
- The decline in the Buyout capital overhang has occurred in the face of continued economic uncertainty; it may be expected that if stable economic conditions return the level of global PE activity will increase and the overhang will come down further.
- Fund managers which have consistently demonstrated top performance have no trouble in raising new funds, and are almost always oversubscribed. The last three years of overhang have served a useful purpose in tempering irrational enthusiasms of every kind; new funds being raised have, generally, had more measured objectives and good managers tend to restrict fund size.
Jonathan Karen, Partner,
Simpson Thacher & Bartlett LLP
- Inasmuch as private equity funds retain large amounts of undeployed capital, the looming expiration of investment periods and challenging environment for debt financing have together done little to temper the desire for new capital from investors.
- The overhang of uninvested capital is symptomatic of the macroeconomic climate: less debt financing equals less M&A activity, which leads to lower portfolio company valuations and less distributions to investors, and hence lower returns. At the same time, more equity is required to make investments and investors have a greater need for extraneous cash to meeting existing commitments. All of these factors have combined to make fundraising, even in an environment of scarcity, to be more difficult.
- As private equity firms face the need to commence fundraising, the next twelve to twenty-four months will likely produce winners and losers. The losers will include firms whose existing internal infrastructure cannot be supported by the smaller bases of capital that they will be left with and/or who will be unable to raise any meaningful amounts of capital at all. This dynamic is reinforced by new regulatory initiatives and compliance regimes that result in increased costs for both private equity firms and their funds’ portfolio companies.
- With respect to private equity fundraising, the impact of ILPA 2.0 and the shift in negotiating leverage have moved the “market” of terms for private of equity funds back in the direction of investors.
- The challenge, time and expense in marketing and raising private equity funds have led to a greater premium placed on investors who can commit outsized amounts at one time. This has led to an increasing trend of better terms and customized products/programs for large investors like sovereign-wealth funds and, to a lesser but more recent extent, state pension plans and agencies.
Steve Brady, National Managing Partner, Transaction Advisory Services,
Grant Thornton LLP
- Coming out of an economically challenging period for private business, one question for the future is whether there is enough supply to meet the demand for deals. Since the supply is less than the overhang, what is the impact on valuations and the ability to get deals done?
- Will this demand with strong valuations pull through more private business looking to execute on an exit?
- What is the impact going to be on PE firms competing for deals with an excessive amount of capital relative to the opportunities? Will the financing markets be able to fuel the level of activity – there still needs to be leverage in the market; are the banks going to be there or not?
Mark Alimena, Audit Partner,
J.H. Cohn LLP
1. For more than three decades, debate has waged over private company reporting requirements – discuss brief history
2. The AICPA recently reported that there are over 29 million issuers of financial statements in the United States – discuss how focus of FASB and SEC for less than 16,000 SEC filing companies negatively affects financial reporting for over 28 million private companies.
3. Discuss relevance of public company reporting to private sector and its users of private company financial statements
4. Findings and recommendations of the Blue Ribbon Panel issued in January 2011; concurrence with AICPA
5. FASB reaction on October 4, 2011 and current status
Mat Rosswood, Partner,
BDO USA LLP
- Indentifying where investors should be focused in Due Diligence in a market where valuation is dislocated by a supply / demand imbalance and the economy is otherwise still in recovery mode
- Finding pitfalls and hidden value in tax attributes
- Keeping on the right side of your earn-out – The leading cause of disputes in SPAs
Who Should Attend:
– Global Investment Managers
– Fund Management Companies
– Senior Investment Professionals
– Chief Investment Officers
– Private Equity Attorneys, Accountants, Advisors, and Consultants
– Investment Attorneys
– Senior Management
Jonathan A. Karen is a Partner at Simpson Thacher & Bartlett LLP, where he is a member of the Firm’s corporate department. Mr. Karen focuses on the organization and operation of a wide range of private investment funds, including buyout funds, distressed, mezzanine and other debt funds, infrastructure funds, real estate funds, venture and growth capital funds, co-investment funds, hybrid funds and hedge funds. He also counsels investment firms on a wide variety of matters involving private funds, including internal economic arrangements for private fund sponsors, M&A transactions and strategic investments involving private fund sponsors, as well as joint ventures, spin-outs and other corporate transactions involving private investment funds.
Mr. Karen has significant experience with a diverse group of investment firms, and representative clients include Blackstone, Calera Capital, The Carlyle Group, Centerbridge, Lexington Partners, Macquarie and Silver Lake.
Jonathan A. Karen is a Partner at Simpson Thacher & Bartlett LLP, where he is a member of the Firm’s …
Steve is the National Managing Partner of Grant Thornton’s Transaction Advisory Services (TAS) practice. He has over twenty five years of experience specializing in advising financial buyers, strategic buyers and lending institutions in mergers & acquisitions and other transactions. Steve has advised clients on numerous cross-border transactions and is a leader in Grant Thornton’s Global TAS leadership team.
Steve’s primary responsibility is the delivery of financial due diligence services for private equity investors and strategic acquirers of businesses, as well as asset-based, mezzanine and structured finance debt providers. Steve brings extensive experience in auditing, due diligence and consulting and personal insight gained from holding executive positions in industry. His expertise extends beyond due diligence, mergers & acquisitions and debt transactions to include raising equity capital, restructuring and turnarounds, business plan development and financial & accounting systems implementation.
Prior to joining Grant Thornton in 2004, Steve was Chief Financial Officer for a regional construction and specialty manufacturing firm and Chief Financial Officer/Chief Operating Officer of a start-up medical device company. Steve was previously an audit partner with an international CPA firm and partner-in-charge of the construction/real estate practice of a large regional CPA firm.
Steve’s other industry experience includes manufacturing, distribution, technology, energy, business services and financial services.
Professional qualifications and memberships
Certified Public Accountant – Illinois
Board of Directors – Junior Achievement of Chicago
Member – Association for Corporate Growth
Bachelor of Business Administration – Accounting and Finance with Honors, University of Wisconsin
Steve is the National Managing Partner of Grant Thornton’s Transaction Advisory Services (TAS) practice. He has over twenty five years …
Mark A. Alimena, CPA, CFE, CFF, is a partner in J.H. Cohn’s Financial Services Industry Practice and Private Equity/Venture Capital Practice. In addition, he is the Firm’s expert in asset securitization conduit and financial company audits, and has extensive expertise in audits of hedge funds, funds of funds, broker-dealers, and related management services entities.
During his more than 30-year-career, Mark has managed audit engagements and provided consulting services to multinational, national, and regional clients in industries including financial services, leasing, distribution, manufacturing, healthcare, importing, and retail.
Mark is a member of the American Institute of Certified Public Accountants, the New York State Society of Certified Public Accountants, and the Association of Certified Fraud Examiners. He is a member of the Founders’ Leadership Council of the Commercial Finance Association’s Education Foundation.
Mark A. Alimena, CPA, CFE, CFF, is a partner in J.H. Cohn’s Financial Services Industry Practice and Private Equity/Venture Capital …
Mat Rosswood is a lead partner in BDO’s Transaction Advisory Practice. Working closely with BDO’s Capital Markets and Private Equity teams, Mat builds collaborative multi-disciplinary teams to support both strategic and financial sponsors in both buy-side and sell-side transactions.
Mat’s career began in London, England, where he served some of the world’s largest and most respected corporations. He took global relationship management roles and supervised multi-national project teams in both compliance and Transaction Advisory assignments – both domestically and internationally. Relocating in San Francisco in 2003, Mat continued to enhance his specialism in Transaction Advisory Services and now completes some 30+ transactions annually.
Mat serves a broad client base, from boutique financial sponsors to multi-national strategic buyers across the deal spectrum including growth equity investments, leveraged buy-out and strategic acquisitions.
Mat holds Bachelor degrees in International Management and French from the University of Bath, England.
Mat Rosswood is a lead partner in BDO’s Transaction Advisory Practice. Working closely with BDO’s Capital Markets and Private Equity …
Eric Warner, DPhil is a Partner and Head of Investor Relations. He is responsible for investor relations and identifying new business on a global basis working with the business development team alongside the investment team. Dr. Warner joined Altius late in 2010, and has 10 years of private equity experience.
Prior to joining Altius, Dr Warner was Head of European Private Equity and M&A at Mercer Ltd, the international consulting practice. He also has substantial corporate finance experience from working in investment banking and previously held positions at Société Générale, NatWest Markets, and Security Pacific Hoare Govett, where he specialized in capital markets and Financials Institutions coverage. Before joining Mercer, he was Chief Financial Officer of Aon Group Ltd, based in the UK. Dr Warner holds a degree in English from Yale University and a DPhil from Oxford. Eric is also a Member of the Institute of Directors.
Eric Warner, DPhil is a Partner and Head of Investor Relations. He is responsible for investor relations and identifying new …
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About Simpson Thacher & Bartlett LLP
Simpson Thacher & Bartlett LLP is widely recognized as one of the preeminent law firms in the world and we have played a substantial role in many of the most complex and noteworthy transactions of the last decade. The Firm devotes to its clients the legal talent and skill of over 800 lawyers with a commitment to hard work, excellence and integrity. With 10 offices globally, the Firm advises clients worldwide across a broad spectrum of corporate transactions and litigation matters by offering straightforward, pragmatic advice that recognizes the client’s business needs in light of prevailing commercial and legal realities.
About Grant Thornton LLP
The people in the independent firms of Grant Thornton International Ltd provide personalized attention and the highest quality service to public and private clients in more than 100 countries. Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd, one of the six global audit, tax and advisory organizations. Grant Thornton International Ltd and its member firms are not a worldwide partnership, as each member firm is a separate and distinct legal entity. Visit us online at www.GrantThornton.com for more information.
About J.H. Cohn LLP
One of the leading accounting and consulting firms in the United States, J.H. Cohn LLP specializes in audit, accounting, tax, and business consulting services for public and private companies and not-for-profit organizations. Since 1919, the Firm's philosophy has remained constant: to provide a highly personalized approach to each client, with intelligent guidance and solutions driven by technical and industry expertise that positively affect client profitability and growth. J.H. Cohn has cultivated a reputation for strategic insight, proactive leadership, unwavering integrity, and a genuine concern for clients and their businesses.
To help clients think and act across national boundaries, J.H. Cohn is an independent member of Nexia International, a global network of independent accountancy, tax, and business advisors and the tenth largest provider of audit and advisory services worldwide. The Firm has offices in New York, New Jersey, Connecticut, Massachusetts, and California. For more information, visit our website at www.jhcohn.com.
About BDO USA LLP
Strategically focused. Remarkably responsive. A century of experience. BDO’s Private Equity Practice provides integrated, value-added assurance, tax, and consulting services across the fund cycle, and across the world – all through a single point of contact. Those who know Private Equity, know BDO.
About Altius Associates
Altius Associates is an independent fund-of-funds and segregated account manager focused solely on private equity and private real assets markets across all geographies. Altius operates from offices in London (UK), Richmond, VA (US), and Singapore.
Altius has a staff of 35 with 14 Partners. Its professionals have been active in alternative assets investing since the mid-1980s, with over 200 years combined investment experience across the world. The Investment team of 21 professionals with deep experience in investing in private markets globally includes a dedicated Research team. Altius bases all investment decisions on extensive research efforts providing global strategies covering all private equity and private real assets (e.g. energy, infrastructure, timber, mining).