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Issues with Committed Capital in Private Equity
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- เผยแพร่เมื่อ 16 ส.ค. 2024
- In this video, we discuss the three issues with committed capital in private equity.
0:00 - Introduction
0:34 - What is committed capital
01:11 - Issue No. 1 with Committed Capital
02:19 - Issue No. 2 with Committed Capital
03:03 - Issue No. 3 with Committed Capital
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Disclaimer: All investment and financial information expressed in this video is for educational purposes only.
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No comparable content on youtube. Looking forward to a new video.
Thanks for saying that. I appreciate your comment!
I listened to this at 1.75x and still understood it. You are a phenomenal communicator sir!
Thanks Danny. I appreciate that.
Great channel & content Steve. Perfect mix of educational material with in the field experience. I don't normally comment but couldn't leave this channel without congratulating you for the content you to offer us
Hi Michael, thank you very much for taking the time to write this detailed comment. I really appreciate it!
Hey man I'm studying the CFA alternative investment sections and I found your videos to be very helpful! :)
Awesome. I just helped re-write the CFA Alternative Investment section that will be launched for the 2022 exam :-)
Doing videos again! please do as many as possible
Thanks Drew. I appreciate your comment. I'm going to try to do a lot more this year. Thanks again!
Good stuff Steve !
Thanks so much!
EXCELLENT , PLEASE CREATE A COMPLETE SERIES ON PRIVATE EQUITY FROM BASICS TO ADVANCE.
Thanks Rahul. I appreciate your comment. I recently hired one of my ex-students and we are creating a complete library of Private Equity content from Basics to Advanced. We are expecting to launch it in 2021. We're excited to put it together! If you want us to notify you when it's done, please email me through my site: www.minkcapital.ca/.
Also, if you have any suggested topics, please let us know. Thanks again Rahul!
Would love to hear your view on how IRR etc. works for private funds other than PE - VC, Private Credit etc. Are the calcs and considerations the same?
Hi samjoyus, thanks for your question. IRR is just a time-based method of calculating a return based on ingoing and outgoing cash flows, so the calculation is the same. Outside of PE/VC/Private Credit, IRR is used in many other places. For example, in corporate finance, managers use IRR and NPV to evaluate whether or not to take on projects (mostly NPV is better in these cases, but IRR is still used - but it can sometimes be a bit difficult to calculate when there are both positive and negative cash flows). Does that make sense?
Very concise video. What about a video base on the problem private equity has to cope with a crisis like covid 19? Interest of diversification of private equity, different millesium...
Thanks for your Cambodinho. That's a good idea. It's interesting to see the PE funds focus on portfolio companies during this time. There are quite a lot of other insights to share. Thanks for this suggestion.
Please explain about amortisation on direct lending loans.
Please make a video on how IRR is such a faulty and BS performance indicator in PE
Thanks Clement. We have three videos talking about certain issues with IRR. Have you seen them:
Drawbacks of IRR: th-cam.com/video/HY2CTedh6z0/w-d-xo.html
Issues with Committed Capital:th-cam.com/video/o7Cw5bUL8-E/w-d-xo.html
Subscription Lines of Credit:th-cam.com/video/osvK66Jc16w/w-d-xo.html
Thanks again for your comment
Hi Steve / I find your content, relevant, concise and very interesting - or just great!. Nothing else like it streaming. I do a fair bit of investing in the Exempt Markets and individual Multi-Family Apartment Syndicates. I feel working with Dealer Reps, Issuers and GP's always leaves a lot of questions. Legal consultation answers a great part of it, except in the area of risk. I have specific examples and they are not ones you could readily observe by reading the OM. Can you recommend any readings to gain a higher level of knowledge in the private markets, or is there any training available?
Hi Michael, Thanks a lot for your message. I appreciate it. It's tough to find good readings that cover this. I try to read niche books on specific areas. As for training, I don't think there's anything great available now. If you have a specific question, please feel free to message me and I can do my best to see if I can help. You can message me here or email me.
Please create video on Difference in performance fees & carried interest
Thanks for your message, Rahul. Carried interest is a type of performance fee. In other words, carried interest would be a subset of performance fees. Does that answer your question or were asking something else? If so, please let me know and I'll do my best to answer your question. Thanks!
Please share your thoughts on accounting of carried interest
Thanks for your message, Rahul. When you say "accounting" are you referring to the part where carried interest are taxed as capital gains? If so, well, this is a hot button issue and the Government changing this tax treatment. I think it that it makes sense to be taxed as capital gains, but I see the argument against it. Here is a 11-page research piece by the Congressional Research Service on "Taxation of Carried Interest": crsreports.congress.gov/product/pdf/R/R46447
if there was a call for a committed capital for an investment, but the Swiss family at the point of the call only had 85% of the commitment capital available
1. Can they invest the 85% they had on hand ?
2. What type of penalties would they incur?
Thanks for your question. If an LP can't meet the full capital commitment, the GP can:
- use a subscription line of credit to give the LP more time
- help the LP sell their stake on the secondary market to another LP
OR, the GP could even
- charge interest
- seize the LP's stake
- sue the LP
Does that answer your question? If you have any further questions/comments, please reply here. Thanks!
@@SteveBalaban Thank you for the response
If the LP decides to charge interest, would this be on the whole amount of the commitment or the amount less the 85% that can be fulfilled ?I.e would the interest be on the 15% commited capital that could be fulfilled because the 85% could be fulfilled
@@MsNairobi Usually, the LP wouldn't allow for only 85% of the committed capital to be given. The LP would want the 100% given, but it would depend on the case-by-case basis. If the LP only has 85% available, it will be up to the GP on how to deal with it. A lot will depend on the relationship with the LP and the GP.
If there was a specific situation where the LP accepted 85% of the capital and lent the other 15% through a credit facility, then the interest would only be on the 15%.
Does this answer your question?