Research and Education: Asset Management Brief (5/2/10)

UIS VP of Research and Education, Kamron Farman-Farmaian, gives a quick introduction to the world of private equity, to prepare us for the Private Equity Night hosted by UIS and AKPsi on Monday.

Asset Management with Emphasis on Private Equity


Mutual Funds- actively managed, liquid

• Open Ended - Shares in fund are bought from the fund itself (Fidelity, Vanguard, T. Rowe)
• Close Ended - Limited number of shares, ownership tradable amongst fund investors, but no new shares are distributed
• Close Ended are generally better than Open ended funds
• Open ended funds forced to sell if investors pull out
• Close Ended funds hard to get into

Exchange Traded Funds (ETFs)- passively managed, liquid

• ETFs are cheap, have very low management fees, easy diversified and function like index funds for a particular sector/area
• It allows for options, short selling, limit orders - like normal equity
• Popular ETF’s (iShares, ProShares, SPDRs)

Private Equity Funds - Actively Managed, illiquid (2&20 fees)- definition of Private Equity

Venture Capital

• Typically less mature companies, start-up stage
• Ideas that require substantial capital

Buyout

• Leveraged Buyout- investor commits leveraged (borrowed) capital- historically debt portion of LBO 60-90% of purchase price
• Management Buyout
• Goal to sell back later at higher price or at IPO

Mezzanine Capital

• Subordinated debt or preferred equity
• Higher risk and higher reward for financing
• Reduces amount of equity capital needed

Hedge Funds- Actively Managed, illiquid (2&20 fees)

• Global Macro- macroeconomic events
• Directional- Equity with Hedge
• Event Driven- Arbitrage price inefficiencies due to specific events (ie Greece or Goldman)
• Relative Value- market neutral but arbitrage price inefficiencies in market

JMI Equity - Coming to Private Equity Night

• Focused on software, internet, health care and IT
• Typically $10-$60 million and sometimes leverages base for larger transactions
• Takes seats on board and works with management to restructure companies

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Private Equity Night

-- Presented by Alpha Kappa Psi and the Undergraduate Investment Society --

Join us to learn about the multi-billion dollar Private Equity industry from executives at JMI Equity, the #1 Private Equity firm in San Diego. Brian Hersman and Dane Skillrud will be presenting an overview of the current private equity industry as well as a specific case study based on the strategic analysis and day-to-day operations that private equity firms use to evaluate portfolio companies. This is an excellent opportunity to network as well as learn about the thriving industry from two seasoned professionals. Food and refreshments will also be provided.


-- About the Speakers --

Brian Hersman
Mr. Hersman is currently the Vice President of JMI Equity. Prior to joining the Firm in 2008, Mr. Hersman was a Senior Associate at Vista Equity Partners and a Business Analyst at McKinsey & Company. Mr. Hersman graduated from Case Western Reserve University and the Harvard Business School.

Dane Skillrud
Mr. Skillrud is an associate at JMI Equity. Prior to joining the Firm, Mr. Skillrud was an Analyst in the Corporate Strategy, Business Development and Technology Group at The Walt Disney Company.