A THOROUGH UNDERSTANDING OF PRIVATE EQUITY

RETOUR SOMMAIRE

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - 2010

FISCAL AND OPERATIONAL ISSUES

Figure 37: Typical lifecycle of a private equity fund

•Marketing Material (PPM) •Road shows •Commitment

•Financial Sponsors •Management Team

•Valuation •Adds on investment

•Choice of jurisdiction •Appropriate tax and legal structure •Authorisation

•Due diligences on targets •Investments •Tax structuring

•Exit strategies •Divestments •Carried interest

Partner

General

Distributions to investors

management Investment

Fund

Fund idea Fund set up

Fund raising Investments

Divestments

liquidation

•Compliance work on investments •Payment flows •Monitoring drawdowns

•Due diligence on managers •Coordination with regulators/ advisers •Fund set up •Operating memorandum

•Payment flow •Monitoring payments to investors/managers

•Compliance work on assets •Income collection

Depository / Depositary/

•Monitoring of capital calls •KYC investors process

Central admin Central ad inistrator

NAV calculation / reporting

Source: PricewaterhouseCoopers, 2007

3.2.2

Subscriptions

The first phase of relationship with investors is the fund raising period when contacts are established by the GP directly or through fund raisers. The fund in its initial form of doc- umentation is introduced to potential investors selected based on the fund patterns de- scribed in term sheets or private placement memorandums. At this stage and up until the fund is incorporated, soft commitments can gathered and rep- resent intentions to invest into the fund. As from the fund legal existence or at least the GP existence, so-called hard commitments can be entered into by investors. They are formalised in commitment or subscription agreements which outline the conditions under which capital will be called from the signatory investors. Commitments are signed for a specific amount, with a defined callable period, present notice periods and outlines all necessary information in terms of Anti Money Laundering (AML)/Know Your Customer (KYC) which will be required from investors in order to invest into the fund. C apital call / drawdown Private equity funds are generally set up as closed-end limited partnerships. To enter into this kind of fund, the LPs sign a subscription agreement which means that they commit to invest a determined amount. They do not fund their capital contribution all at once. Typically, 5 to 10% of commitments are drawn upon formation of a fund, with the remainder called over time as directed by the GP and as needed for new investments and/or fund expenses. The deal for any GP is of course to draw exactly the amount required in best time to optimise fund performance and then the IRR. Capital calls and capital distributions

3.2.3

page 60 | A thorough understanding of PE