Investors choose private equity funds and investments to obtain returns that are not possible by investing in listed equities. Private equity refers to capital investments made in not publicly traded companies. Most private equity investments are open to accredited investors known as high net worth individuals. The two main classifications of investments are venture capital investments and leveraged buyouts. The normal horizon for investments in private equity is 4-7 years.
Leveraged buyouts signify situations when private equity firms buy a target firm using the debt or leverage route. The debt is collateralised by the assets and operations of the target firm.
Venture capital signifies making an equity investment in a firm when it is newly established or operating in a less mature industry. With funds under management running into billions, private equity is becoming an important and attractive asset class.
Reading established literature in this field will provide an insight into the nuances of a private equity transaction or understanding of the existing body of knowledge on this subject. Some of the best books which can provide valuable insights into the private equity world are listed below:
1. Investment Banks, Hedge Funds, And Private Equity By David Stowell
In this book, David Stowell explains the interlinkages between these three worlds as they compete and support each other. This book looks at the aftermath of the financial crisis of 2008, which affected the above industries, and how they evolved to adapt to the new financial scenario. Professor Stowell outlines the importance of capital as a driver for economies, governments, and corporations. This book can also serve as a reference book as the most recent ten landmark transactions with case notes and questions are included. The book can be considered an omnibus book as it covers three important segments of the financial universe: investment banks, hedge funds, and private equity.
2. The Masters of Private Equity and Venture Capital: Management Lessons from the Pioneers of Private Investing by Robert Finkel
This is a collaborative book with different experts in the private equity/venture capital space pitching in their ideas about the inner workings of the private equity world. Just like investing in listed equity requires a lot of due diligence and homework, private equity requires more in-depth study. The returns in this industry are magnified, but there is also a quantum leap in the risks of private equity and venture capital investments. It contains lessons, advice, and insights into the industry given by two individuals 1) a top-notch financial journalist and a 2) Private equity investor and a guru. The book contains the distilled practical experience of several private equity managers who are all well-reputed in this field. It contains several colourful stories of the wins and losses in the private equity world and the lessons to partake from them. How private equity investors work with corporate management in relatively new markets which are not mature and ensure value addition through operational improvements are the learnings from this book. The book also talks about applying private equity to non-profits.
3. Venture Capital And Private Equity, A Casebook By Josh Lerner, Felda Hardymon & Ann Leamon
The book analyses the main corporate finance principles and the key distinctions between venture capital and private equity. Josh Lerner is a respected Harvard Business School professor. The whole gamut of private equity, right from structuring and raising funds to valuation strategies to real-life international deals, is covered in this book. It is one of the must-have reference books for providing a consolidated body of knowledge in private equity for a P/E analyst and is worth its weight in gold.
4. Lessons From Private Equity Any Company Can Use, By Orit Gadiesh And Hugh Mcarthur
Private Equity firms are past masters at producing huge returns through dramatic improvement in operations. This truism can be applied to any corporation in any industry, but it is more apparent in the Private equity industry. The authors point out six lessons to be drawn from the private equity industry:
- Define full potential: Private equity firms analyse the environment, the organisation, the target market, and the cash flows of the company. By creating value addition to the operations, they generate high profits.
- Develop the Blueprint: The value-additive initiatives are transformed into actionable tasks whose results are monitored from start to finish.
- Accelerate Performance: The actionable insights are used to accelerate organisational performance and monitored by certain Key Result Area metrics.
- Harness Talent: Talent is harnessed by creating an incentive system of rewards and ensuring efficient operation and execution of decisions
- Make equity sweat: Most P/E firms adopt leverage. This means rising costs in an interest rate-tightening cycle. Working capital must be optimised, investing in capital expenditures must use a disciplined approach, and tight control must be maintained over most balance sheet exposures.
- Foster a results-oriented mindset: The organisation must create a culture to foster constant performance improvements.
5. King Of Capital: The Remarkable Rise, Fall, And Rise Again Of Steve Schwarzman And Blackstone By David Carey
This is the story of the transformation of Blackstone from being hostile takeover artists and gamblers to risk-conscious financial investors. Blackstone quietly accumulated cash and wrested control from competitors during financial excesses of extreme leverage by major Wall Street firms like Bear Stearns, Goldman Sachs, and Morgan Stanley. Blackstone went from being a company with two guys and one secretary to a company that minted millions. The authors also look at whether private equity players like Blackstone enrich themselves at the cost of the companies they invest in or do they help in adding value to the corporations to make them bigger and better than they were before. The book looks at the inner workings of a secretive private equity company ruled by two warlords Schwarzman and Peter Peterson. Blackstone and its private equity model provide the road map for a successful private equity company in the post-global financial crisis world.
In Conclusion
Books are a great instrument to impart learning, especially in complicated subjects like private equity and venture capital. Whether war stories or an established body of knowledge, you can enhance your corporate finance and valuation methodology techniques yourself by reading books on or written by the greatest private equity minds. Private equity success stories serve the same purpose. Most of the books listed above can also help with your continuing education after becoming a professional. But do not stop learning here.
To become a successful Private Equity Analyst or Seekho/to learn/upskill yourself. Studying pertinent, related courses will only enhance your curriculum vitae and increase your knowledge base.
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