Estate Planning for Private Equity Principals, Nov 2010
Since the introduction of carried interest, Private Equity principals have been able to benefit from the favorable capital gains tax treatment by making gifts or estate planning transfers. The benefits of making transfers during the fund formation stage is a very important factor for a variety of reasons.
The main reason for making gifts near or about the time of formation is that the value of the carried interest is considerably lower than making the gifts at any time during the private equity lifecycle for the following reasons....
Understanding Private Investment Expected Returns, Oct 2015
One of the most important considerations in determining the value of any investment, asset or business, is to look at returns of comparable investment that share similar risk and return profiles. In the case of private investments, the return of a company is the amount necessary to compensate its shareholders for the business and financial risks they bear; the return on invested capital is the return they expect to earn through a combination of dividends and capital appreciation. The expected return of an investment can be considered using the different investments and their risk and return profiles. There are various ways of determining the expected return of a private investment. Each method has its benefits and pitfalls. One of the recognized methods is by building up the risk profile of various investment opportunities and their returns to arrive at the appropriate return of the subject investment....
Investment Considerations When Investing in Private Companies, June 2014
Trade settlement on the New York Stock Exchange (NYSE) or Nasdaq refers to the length of time a seller has to deliver his stock to the buyer and the length of time the buyer can take to pay for the shares. The current settlement rule is referred to as “T+3” settlement, which means that the stock trade must settle within three business days after the stock trade was executed. For example, if you sell the stock on Tuesday, the money should be in your account by Friday.
However, investments in private companies, or private investments, do not have the same advantages as those of publicly traded companies when it comes to liquidating or selling these investments. They can often take months, if not years, as they are not registered for such sales and do not have the access to the capital markets....
Boom in Trusts Passing Carried Interest to Heirs (By Arden Dale, Wall Street Journal), Feb 2014
A new generation of principals in their 30s and 40s at private-equity firms and hedge funds are making their first estate plans, creating a boom in trusts that give their heirs a lucrative slice of the investments they oversee....
An Introduction to the Process of Valuing a Business - Part 1
One of the most difficult aspects of business appraisals is “How did you arrive at your opinion?” I have been in the valuation business since 1995, and have performed hundreds of valuations – from simple analyses to complex modeling – across a variety of industries, real estate/investment holding entities to manufacturing, service and private equity funds, among others. Prior to my career in valuation, I have been involved in the due diligence of an acquisition of a large multinational. What struck me to be the most interesting aspect of that work was that our opinion was that it was a third of the value opined by the investment bankers, which soon peaked my interest and led me down the path of performing business valuations for the next 20 years.
The Importance of Qualified Appraisals, Jun 2010
Appraisals are very important for a variety of reasons depending on their purposes. For the most part, they are very informative and often used to make good business decisions, whether to buy or sell, or whether to liquidate a business, or even to provide investor information to regulatory bodies such as the Securities Exchange Commission (SEC) or the Internal Revenue Service (IRS). They are also necessary in dispute resolutions and in litigation....
News and Updates
Private Equity Carried Interest Valuation Considerations, August 2016
In 1999, I began performing my first valuation of a carried and capital interest in a Private Equity Fund, which had a total capital commitment of $50 million. At that time, I was amazed at the size of the fund, thinking how large it was for a start up private equity fund. Now with almost 20 years under my belt since my first private equity valuation, I have had the opportunity to value several hundred of these interests in various types of funds - private equity funds, buy outs, hedge funds, and alternative investments, such as fund of funds with commitments ranging from a little as $25 million to as large as $5 billion and more....
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