"Private equity is more economically significant than ever, as institutions hunt for high returns in a risky world. Private Equity 4.0 examines the role, workings and contribution of this important industry in a straightforward yet revealing manner."Dr. Josh LernerJacob H. Schiff Professor of Investment BankingChair, Entrepreneurial Management UnitHarvard Business SchoolA multi-perspective look at private equity's inner workingsPrivate Equity 4.0 provides an insider perspective on the private equity industry, and analyzes the fundamental evolution of the private equity asset class over the past 30 years, from alternative to mainstream. The book provides insightful interviews of key industry figures, and case studies of some of the success stories in the industry. It also answers key questions related to strategy, fund manager selection, incentive mechanisms, performance comparison, red flags in prospectuses, and more.Private Equity 4.0 offers guidance for the many stakeholders that could benefit from a more complete understanding of this special area of finance.* Understand the industry's dominant business models* Discover how value is created and performance measured* Perform a deep dive into the ecosystem of professionals that make the industry hum, including the different incentive systems that support the industry's players* Elaborate a clear set of guidelines to invest in the industry and deliver better performanceWritten by a team of authors that combine academic and industry expertise to produce a well-rounded perspective, this book details the inner workings of private equity and gives readers the background they need to feel confident about committing to this asset class. Coverage includes a historical perspective on the business models of the three major waves of private equity leading to today's 4.0 model, a detailed analysis of the industry today, as well as reflections on the future of private equity and prospective futures. It also provides readers with the analytical and financial tools to analyze a fund's performance, with clear explanations of the mechanisms, organizations, and individuals that make the system work.The authors demystify private equity by providing a balanced, but critical, review of its contributions and shortcomings and moving beyond the simplistic journalistic descriptions. Its ecosystem is complex and not recognizing that complexity leads to inappropriate judgments. Because of its assumed opacity and some historical deviant (and generally transient) practices, it has often been accused of evil intents, making it an ideal scapegoat in times of economic crisis, prodding leading politicians and regulators to intervene and demand changes in practices. Unfortunately, such actors were often responding to public calls for action rather than a thorough understanding of the factors at play in this complex interdependent system, doing often more harm than good in the process and depriving economies of one of their most dynamic and creative forces. Self-regulation has clearly shown its limits, but righteous political interventions even more so.Private equity investment can be a valuable addition to many portfolios, but investors need a clear understanding of the forces at work before committing to this asset class. With detailed explanations and expert insights, Private Equity 4.0 is a comprehensive guide to the industry ways and means that enables the reader to capture its richness and sustainability.

List of case studies ixAbout the authors xiProfessional acknowledgments xiiiPersonal acknowledgments xvForeword xviiIntroduction xxiPrivate equity at the crossroads xxiAn historical perspective to gain insights for the future xxiPrivate equity: all about people xxiiiThe best capitalism has to offer? The conceptual groundings xxivEmpowering and incentivizing: partnering for mutual success xxivFocus, focus, focus xxvStrategy is cheap; operationalizing is key xxvAlignment brings cohesion xxviFlexibility as strategic value xxviCarrots and sticks: the value of discipline xxviLeverage... at all levels xxviiThe cash flow paradox xxviiThe buy-and-sell approach: capitalism on speed xxviiiBelievers, sceptics and cynics xxviii1 Private equity: from "alternative" to "mainstream" asset class? 1Moving into mainstream 3A brief history 6An increasingly global industry 8Private equity in North America 10Private equity in Europe 11Private equity in Asia 12Emerging private equity players 13An industry in the limelight 182 Private equity as a business system 25Setting the stage 27The raison d'être of private equity funds 27Private equity's market segments 29The fuel behind private equity: investors 37Portfolio allocations by investors 39The (apparent) madness of private equity fees 42Management fee 43Carried interest 43General partner interest 46Commitments versus investments 50Distributions in cash, please! 51Due diligence, leverage, focus and... incentives 53Superior information 54Active ownership 54Financial leverage 55Alignment of interests 55Mitigating possible confl icts of interest 56Illiquidity... and new ways to cope with it 58Secondaries market 58Publicly listed private equity vehicles 603 Value creation in private equity 69The art of private equity 71Sourcing deals 74Creating value in private equity 78Operational value 79Exiting investments 95The economic impact of private equity 964 Private equity performance 103Performance metrics 106Valuing realized and unrealized investments 108Reporting fund performance 109Membership and self-reporting biases 109Performance by segments 112Performance by fund size 113The persistence effect 114The timing effect 116Comparison against benchmarks 117Correlation to other asset classes 1215 The main characters in private equity 125Size matters: fund sizes, deal sizes and other dimension issues! 127Global alternative asset managers 132Example: The Carlyle Group 133Example: Bain Capital 138Regional, domestic and multi-country funds 142Example: EQT Partners 143Mid-market funds 146Example: H.I.G. Capital 148Venture capital funds 152Example: TVM Capital 154Distressed private equity 157Example: Cerberus Capital Management LP 159Secondary funds 162Example: Coller Capital 163Funds-of-funds 165Example: Pantheon 166Example: AlpInvest Partners 169Institutional limited partners 171Example: CalPERS (California Public Employees Retirement System) 1716 The supporting cast 173London as European centre of gravity 176The private equity ecosystem: follow the fees 177Investment banks 178M&A advisory fees 179Arrangement fees 180Securitization fees, or the price of turning frogs into princes 180Fund management fees, or how to compete with your best clients 182Lending banks 183Accountancy firms 184Law firms 185Due diligence specialist providers 186Strategy consultants 187Placement agents 189Fund administrators 190Recruitment consultants 191Public relations agencies 1927 Investing in a fund 195The private equity game 197The decision to invest 198Choice of investment vehicle 203Direct fund investments 204Indirect fund investments 204Diversification in a rich marketplace 209Stages of investment 210Geographic focus 210Sector and size of investments 210Strategic approach 210Types of private equity firms 211Timing 211The pitch 212Manager selection 214Due diligence 216Terms, conditions and fee structures 221Subscription to a fund 228Capital calls 228Monitoring 229Distributions 230Reporting 232Fund liquidation 2338 The future of private equity 235Reports of private equity's death were highly premature 237Private equity in a changing world 239Conclusion 244Index 247