A THOROUGH UNDERSTANDING OF PRIVATE EQUITY

INDUSTRY OVERVIEW........................................................................................................................................ 9 1.1 Introduction to private equity .................................................................................................................. 9 1.1.1 Definition............................................................................................................................................... 9 1.1.2 A brief history of private equity................................................................................................ 10 1.1.3 Main concepts of private equity.............................................................................................. 12 1.1.4 Comparison between private equity funds and traditional funds............................ 20 1.2 Private equity strategies and sectors ............................................................................................. 22 1.2.1 Venture capital .............................................................................................................................. 22 1.2.2 Buyouts............................................................................................................................................... 23 1.2.3 Mezzanine financing..................................................................................................................... 19 1.2.4 Distressed debt ............................................................................................................................. 23 1.2.5 Private equity real estate .......................................................................................................... 24 1.2.6 Clean technologies........................................................................................................................ 25 1.2.7 Infrastructure ................................................................................................................................. 26 1.3 Market overview......................................................................................................................................... 27 1.3.1 The North American private equity market...................................................................... 28 1.3.2 The Western European private equity market................................................................ 30 1.3.3 The Asian and rest of the world private equity market............................................... 33 MAIN ACTORS AND STRUCTURES........................................................................................................... 35 2.1 Roles and responsibilities of main actors ...................................................................................... 35 2.1.1 General Partner............................................................................................................................. 35 2.1.2 Limited partner............................................................................................................................... 36 2.1.3 Placement agent............................................................................................................................ 37 2.1.4 Depositary ........................................................................................................................................ 37 2.1.5 Administrative agent (fund administrator)........................................................................ 38 2.1.6 Registrar and transfer agent................................................................................................... 38 2.1.7 Auditor................................................................................................................................................ 38 2.1.8 Legal adviser ................................................................................................................................... 39 2.1.9 Tax adviser ....................................................................................................................................... 39 2.2 Overview of main legal frameworks and vehicles........................................................................ 41 2.2.1 Luxembourg..................................................................................................................................... 42 2.2.2 France................................................................................................................................................. 46 2.2.3 Ireland................................................................................................................................................. 48 2.2.4 The United States.......................................................................................................................... 50 2.2.5 Switzerland....................................................................................................................................... 51 2.2.6 The United Kingdom..................................................................................................................... 52 2.2.7 The Channel Islands...................................................................................................................... 52 FISCAL AND OPERATIONAL ISSUES.......................................................................................................... 55 3.1 Fiscal aspects............................................................................................................................................... 55 3.1.1 Preamble........................................................................................................................................... 55 3.1.2 Investment scheme structure................................................................................................. 55 3.1.3 Examples of common setups................................................................................................... 56 3.1.4 Financing the investments......................................................................................................... 57 3.1.5 VAT effects....................................................................................................................................... 58 3.2 Operational issues..................................................................................................................................... 59 3.2.1 Preamble........................................................................................................................................... 59 3.2.2 Subscriptions................................................................................................................................... 60 3.2.3 Capital calls and capital distributions................................................................................... 60 3.2.4 Investments...................................................................................................................................... 61 3.2.5 NAV calculation/IRR.................................................................................................................... 63 3.2.6 Reporting........................................................................................................................................... 65 3.2.7 Waterfall distribution................................................................................................................... 68

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A thorough understanding of PE | page 5