The report is looking at the increasing interest in Private Equity investment from the Danish pension funds. It raises the question, how does the Private Equity funds create value? The measurable answer to this question can be found in the performance of the Private Equity funds. The report states that Funds outperform the public market by 485 basic points before adjusting for the risk. After the risk adjustment Funds of Funds deliver the best result per risk unit. Besides the outperformance investors get a more diversify investment portfolio. Private Equity has a negative correlation between most asset classes and therefore reduces the risk. The funds take active ownership of the subsidiary is the secret behind the performance is a special formula. This formula has different shapes depending on what creates the most value for the subsidiary. Whether it is optimizing the capital structure or improving the sale, this all falls under the special formula -‐ active ownership. Scientist has pointed at five main factors that create the outperformance. 1. Business acumen 2. Management get a small ownership 3. Optimizing the capital structure 4. Business improvement 5. Changing insufficient management The five factors could just as well have been implemented in a listed company, but the short time frame the Private Equity Funds operates within increases this effect. The five factors could just as well have been implemented in a listed company, but the short time frame the Private Equity Funds operates within increases this effect. Based on the findings in this report investments in Private Equity has more advantages than disadvantages. This could be why there is an increasing interest for Private Equity investments.
|Educations||Graduate Diploma in Finance, (Diploma Programme) Final Thesis|
|Number of pages||71|