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Pineapples account for more than 20% of the world production of tropical fruit, and they are second only to bananas as the most important harvested fruit crop. Just 12 countries create 90% of global pineapple demand. While most pineapple is harvested and consumed as fresh fruit in the country of production, pineapple exports have been dominated by one country for more than a decade: Costa Rica.

 

'Costa Rica generated 85% of global pineapple exports in 2010'

 

In the last decade, Costa Rican exports have exceeded US$5 billion, and they have never represented less than half of the global export value in any one year. Other export industry players are tiny by comparison.  

Producers in Ecuador, Mexico, Ivory Coast and the Philippines have struggled with crop quality and export logistics. Costa Rica's neighbors Panama & Honduras have recently begun ramping up to compete.

 

Only about 30% of worldwide production is exported, increasingly the MD2 variety, although the "Smooth Cayenne" variety is the most commonly grown worldwide. Major producers with few exports include Brazil, Thailand, Indonesia, India and the Philippines. Major importers are the U.S. and the E.U. Costa Rica's success is notable given that its production represents less than 10% of global pineapple production.

 

Big pineapple production is highly industrialized by Dole and Del Monte, which brought the MD2 variety to Costa Rica from Hawaii in 1996. Growers use 20 kilograms of pesticides per hectare in each growing cycle, affecting soil quality, biodiversity, drinking water quality, and the health of workers and the local population. Most pineapple workers in Costa Rica are Nicaraguans who will work for very low wages. For more details on the downside of industrialized pineapple production, see Felicity Lawrence's "Bitter Fruit" (2010, Guardian News, London).

Small pineapple is organic, fair-trade, and ecologically and socially sustainable.  

 

According to the Food and Agriculture Organization of the United Nations and the Export-Import Bank of India, demand for healthy and organically produced pineapples should increase considerably over the next 10 years. "Generally, the growth rate of organic markets is significantly higher than that of conventional markets, and that should hold true for the organic pineapple market too, demand currently outstrips supply. Retailers increasingly demand organic pineapples of the MD2 type." Time from planting to harvest for a pineapple crop averages 18 months.

 

A recent United Nations Conference on Trade & Development (UNCTD) analysis of the evolution of the world market for fresh pineapples speaks to a fierce battle between global agricultural giants and grocery retail chains. "A new driver seems to be gaining strength, as firms awaken to the advantages of using private standards as a strategic tool and to reassure anxious consumers. This is evidenced through the explosion of private and business-to-business standards aimed at guaranteeing the quality/safety of food products." For a full commodity profile, visit UNCTD.

 

  

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Alternative Emerging Investor is a bimonthly magazine that covers alternative investments in the emerging markets.  Its scope includes infrastructure, real estate, commodities, renewable energy, wine, hedge funds, foreign exchange markets private equity, and art.   The publication provides information on less common investments and publishes content from professional investors.


  

For more information about Alternative Emerging Investor, please contact Tiffany Swenson at 202.905.0376 or tiffany@aeinvestor.com.    

 

 

Interesting Research



  PitchBook     

The purchase price multiples paid in private equity (PE) transactions held fairly steady in 3Q 2013, although there were some significant shifts when breaking down deals by size. For instance, the median enterprise value (EV) to EBITDA multiple for deals of $25 million or less fell from 5.0x in 2Q to 2.5x in 3Q. And while the median EV to EBITDA multiple rose to 10.7x for transactions of $250 million or more, the median revenue multiple fell to 1.7x - its lowest point in more than two years. While larger deals tend to carry higher purchase price multiples, perhaps the best indicator of a deal's price is the past and anticipated revenue growth of the target company. And with PE firms increasingly pursuing businesses with robust revenue growth, it's no wonder that many PE firms are reporting that deal multiples remain at elevated levels.

 

One of the major developments in 3Q 2013 was the continued decline in the amount of debt used in PE transactions, with the median debt level for all PE deals falling to just 50%. Looking at debt levels over the last two years, PE firms gradually incorporated more leverage throughout 2012, reaching a peak of 61% in 4Q, but have tapered the amount of debt used in their transactions throughout 2013. After falling dramatically in 2Q 2013, the percentage of deals that included monitoring fees rose significantly in 3Q but still remained below 50%. Fewer firms have been charging transaction fees from their portfolio companies as well, likely due to the fact that many limited partners (LPs) have expressed concern and are insisting that these fees be rebated to them.

 

Here are some key statistics from 3Q 2013 that will be explored in this report:

  • Median EBITDA multiple: 6.81x
  • Median revenue multiple: 1.20x
  • Median debt percentage: 50%

 

Combining data gathered through a confidential survey of PE professionals and the comprehensive deal data in the PitchBook Platform, the Deal Multiples & Trends Report offers the most detailed analysis of the current PE landscape available. We understand that deal terms and multiples are some of the most sensitive information to PE professionals. As such, all information provided by survey respondents remains completely anonymous, will not be integrated into the PitchBook Platform and is used exclusively for aggregated purposes in PitchBook reports.

 

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The PitchBook Platform includes market-leading data on the entire private equity lifecycle in addition to workflow tools that help industry professionals more effectively do their jobs.

For more information regarding PitchBook, or to schedule a demo, please contact Lisa Helme Danforth at 203.321.7635 or lisa.helmedanforth@pitchbook.com.




Industry Events
Click on Event Name in Bold for more information.

 
Specialty Finance Summit 2014
January 15, 2014 | New York, NY
A deal-sourcing event, where investors will meet potential targets and acquirers for their businesses and issuers will share best practice strategies to generate new funding opportunities. Activity in the specialty finance sector is growing, as rates remain low and banks stay away from SMEs and high-risk consumers. The securitization markets have opened up and there is tremendous demand for the high-yield debt issued by specialty finance companies. Whether you are an alternative lender, investor or specialty finance company, the Summit will connect the leading executives in the market to network and benchmark from each other the latest best practice strategies.

Private Equity In For-Profit Education 

January 16, 2013 | New York, NY  

Affordability is the biggest issue facing the education industry today -- for for-profit companies and not-for-profit institutions alike. Designed to Meet the Needs of GPs, LPs, & Managers of Buyout, Growth Equity, Mezzanine, & Lending Funds, as well as Independent Sponsors, Operating Partners, Portfolio Company Managers, and the Bankers, Lawyers, Accountants, & Other Advisors Who Support Them. Chaired by David Warnock, Founder of Camden Partners Holdings LLC.

    

ACG Ski & Snowboard Conference

January 26-28, 2014 | Stratton, VT

Join peers and colleagues from New York, Boston, Philadelphia, Connecticut and New Jersey for a weekend of close-knit networking, fabulous accommodations, gourmet food, and a day or two of great skiing and snowboarding! Other local activities include cross country skiing, a day at the spa, fashion outlet shopping, and snowmobiling.

  
SuperInvestor 2014

February 3-5, 2014 | San Francisco, CA 

Over 300 powerful investors and industry experts from across the private equity & venture capital landscape will gather at SuperInvestor U.S. in San Francisco in February 2014.  Three days of networking and high-level debate on the burning questions of private equity investing including micro-VC, portfolio company interviews, family office views, the outlook for public pension funds and more.
Long/Short & Quant Funds
February 24, 2014 | New York, NY

Catalyst Cap Intro Events are sector focused, investor driven events that host hand-picked investment managers and investors that are introduced to each other with a view to become investment partners. This Catalyst Cap Intro Event focuses only on the L/S Equity and Quant sectors. Introductions are accomplished through private meetings which are arranged prior the events, in an investor driven fashion based on the merits of each investment manager and the requests made by the investors. If a manager has not enough interest, they may cancel their participation, with full refund of fees. Investors are pre-screened and pre-qualified prior the events. Investors constitute predominantly single and multi-family offices, endowment and foundations, and their advisors, located on the US East Coast corridor, but also internationally.

 

Columbia PE & VC Conference

February 28, 2014 | New York, NY 

This year's conference will bring 1,000 professionals, alumni, and students to The Sheraton New York for a day of candid discussion on the state of the industry. Our 2014 Conference theme 'Driving Entrepreneurial Thinking in the World of Investing' will focus on the emerging challenges and opportunities facing the private equity and venture capital industries in the coming year. The goals of this conference are to educate, promote discussion, and provide a forum for interaction between academics, professionals, and students who are active in the private equity and venture capital communities. New York City is at the epicenter of these industries, and Columbia Business School is committed to being a leading mentor in developing the next generation of industry talent.

  

Family Wealth Report Awards 2014

March 13, 2014 | New York, NY 

These awards will build on the success of our established worldwide awards programme, our events business and Family Wealth Report's unique position in the global wealth management market by focusing on the US and Canadian markets. Independence, integrity and genuine insight will be the watchwords of the judging process. This will involve specially convened expert panels drawn from both private banks and trusted advisors and supported by relevant expert third party organisations.Uniquely, partner organisations will be included to express the views of clients so that the Family Wealth Report Awards will truly reflect excellence in wealth management from the grass roots up.

 

Peruvian Investors Forum

March 18-19, 2014 | Lima, Peru 

The event provides Peruvian pension funds, family offices, private banks, insurance funds and sovereign wealth funds, along with pensions and families from Ecuador, Uruguay and Argentina and asset managers from Peru, the Andean states and the global industry with a due diligence platform to explore and discuss trends and opportunities in global alternatives such as hedge funds, private equity and real assets, as well as newfound opportunities and portfolio construction in equities, fixed income and ETFs. Similarly, the program hosts US & European pension funds, foundations and endowments for discussions of investing in Peru and fosters a comparative look at institutional portfolio construction.  

 

 


Bloomberg Professional


PE HUB Wire


Allianz
Bloomberg Private Equity
JPM Equity Funds

Alternative Asset Management
 Volume VI, Issue 1 - January 2014



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Private Equity Enjoys a Record Year    
The Wall Street Journal | December 31, 2013 | By Ryan Dezember   

 

 

Firms Are Set to Return More Than $120 Billion to Investors for 2013

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Private-equity firms are set to return a record amount of cash to their investors for 2013, after taking advantage of buoyant markets to sell hundreds of billions of dollars of investments.

From initial public offerings to company debt deals that pay private-equity investors hefty dividends-this year will be remembered for the gains earned by firms that specialize in buying and selling companies, and by the pension funds, university endowments and wealthy individuals that invest in them.

 

Investors in private-equity funds are expected to receive more than $120 billion for 2013, topping last year's record of $115 billion, according to estimates by Cambridge Associates LLC, which gets a glimpse of firms' finances as an adviser to private-equity investors. In the first half of 2013, private-equity firms returned $60.8 billion to investors.

 

"There's a time to reap, and there's a time to sow," Apollo Global Management LLC founder and Chief Executive Leon Black said at a conference in April. "We're selling everything that's not nailed down."

 

The rising stock market, combined with debt markets that welcomed the often-risky offerings from private-equity-owned companies, created ideal conditions in which to cash out of investments.

 

On Dec. 11, Blackstone Group   LP reaped about $1 billion trimming its stakes in SeaWorld Entertainment Inc. and Vlasic pickles owner Pinnacle Foods Inc. That same day, Hilton Worldwide Holdings Inc.   returned to public ownership after six years, paving the way for Blackstone to begin collecting rewards for its bet on the hotel operator. At Hilton's current stock price, Blackstone's profit would be about $8.5 billion on an investment it once wrote down to 70 cents on the dollar.

 

The blockbuster year is good news for many money managers around the world. In recent years, private equity's pitch of strong returns and diversification from other markets, such as stocks, has lured more and more pension funds and university endowments.

 

"It makes people feel more confident in private equity as an asset class," says Tony Tutrone, who manages $18 billion of private-equity investments at asset manager Neuberger Berman Group LLC. Companies' struggles during the recession "were so extreme, I think people expected much worse outcomes," he says.

 

The sales gave private-equity firms a boost as they asked investors to commit to new funds. Firms raised buyout funds totaling $143.5 billion this year, the highest level since 2008, according to data provider Preqin.

 

"If private-equity firms haven't been returning boatloads of money recently, given  current market conditions, I view that as a red flag," says Andrea Auerbach, Cambridge's head of private-equity research.

 

The selling also suggests big payouts for private-equity executives. Once profits in a given fund exceed certain levels, firms are entitled to a slice, called carried interest, that is distributed among their executives. Typically, it is around 20% of profits over a certain level, and it can amount to billions of dollars that is taxed less than is ordinary income.

 

In the case of some big private-equity firms that are publicly traded, such as Blackstone, Apollo and KKR & Co., shareholders also get a slice of deal profits. Some of these firms have seen their share prices soar this year.

 

Private-equity deal makers and investors credit the firms for the successful selling, saying they have improved the companies they have bought by cutting costs, guiding them into new markets and consolidating sectors.

 

"They have done all the right things over the last four or five years...to prepare these companies for successful exits," says Bill Sanders, who leads Morgan Stanley's business advising private-equity firms on deals.

 

Yet even executives acknowledge that lately they have benefited from forces beyond their control. Blackstone co-founder and CEO Stephen Schwarzman quipped at a conference earlier this month that he had recently thanked Federal Reserve Chairman Ben Bernanke for investors' prosperity in 2013, citing Fed policy that has kept interest rates low and is widely perceived as boosting prices for stocks and some other assets.

 

That policy has had positive effects across Blackstone's businesses, which range from investing in corporate debt to buying real estate. The rewards have been particularly plentiful in its private-equity funds, which have returned about $10 billion to investors this year, according to a spokesman.

 

The activity has helped Blackstone's own stock double this year, last week surpassing the price at its initial public offering for the first time since 2007. The rally has boosted the value of Mr. Schwarzman's stake in the firm by some $3.7 billion, to $7.3 billion.

 

Profits from sales helped Apollo pay dividends to shareholders for business through the end of September that were well in excess of any prior full year's total. Mr. Black and Apollo's two co-founders, who are the firm's top shareholders, together took home more than $585 million from dividends in that period.

 

Cash flowing back from sales has helped offset losses from buyout targets that have flopped. A fund raised by KKR in 2006, for example, had been dragged down by its soured bet on Texas power provider Energy Future Holdings Corp., which has taken steps toward a possible bankruptcy filing. But big exits this year from companies such as retailer Dollar General Corp. and hospital operator HCA Holdings Inc. pushed the $17.6 billion investment pool to a level of profitability that will entitle the firm's executives and shareholders to a slice of future gains.

 

The prime conditions came at a convenient time for the industry and its clients.

Private-equity firms' agreements with their investors typically require them to return cash within 10 years or so, putting them on schedule to begin liquidating investments they made in a historic buying binge during the years leading up to the financial crisis. The selling is expected to continue, as firms still have many investments they need to exit from. Cambridge says private-equity firms collectively have more than 3,000 investments on their books to be sold in coming years.

 

  Read More  
 


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Alternatives Strategies Still the Top Asset Draw
Pensions & Investments | December 9, 2013 | By James Comtois

 

 

Pensions&Investments

Alternative investments - particularly private equity - were massively popular with institutional investors this year, continuing a trend that has endured at least three years.

_______________________ 

 

Through November, Pensions & Investments' Research Center data showed 873 alternatives mandates awarded - including both new accounts and add-ons - totaling $73.02 billion. Of that, 376 were private equity, totaling $30.12 billion.

 

Based on dollar value, alternative mandates account for 43% of all institutional hiring activity made during this period.

 

This is a healthy bump up from last year's institutional hiring activity, when P&I reported 769 alternatives hires made during the same 11-month period, totaling $60 billion. Among the alternative mandates that were made then, 355 were in private equity, totaling $25.3 billion.

 

All told, institutional investors made 1,979 new hires totaling nearly $168.2 billion through November, representing a healthy 38% leap from the year-earlier period. Even excluding outsourced CIO and defined contribution activity, investors made $128.3 billion in hires during the first 11 months of 2013, up 15% from the same period a year earlier.

 

Traditional assets accounted for 33% of hiring activity for the year by dollar value, representing $55.2 billion. Of these traditional mandates, 67% ($36.9 billion) came in equities, 25% ($13.9 billion) in fixed-income and 8% ($4.4 billion) in other traditional assets.

 

Florida State Board of Administration, Tallahassee, was the second most active institutional investor in P&I's database for the 11 months, awarding 41 mandates. (The University of Michigan endowment was first, with 43.)

 

According to data provided by the FSBA for the 12 months ended Sept. 30, the fund made 37 hires totaling $4.8 billion - the majority of them in alternatives. Spokesman John Kuczwanski explained in an e-mail that this is part and parcel of its strategic investment plan.

 

"The SBA's focus has been, and will continue to be on filling out our alternative asset classes - mainly strategic investments and to a lesser extent private equity," he said. As of Sept. 30, the FSBA had 17% of its $138 billion in defined benefit assets allocated to alternatives.

 

Pennsylvania State Employees' Retirement System, Harrisburg, also made a large number of hires through the year, 28 commitments totaling up to $1.96 billion.

"Our 2012-2013 strategic investment plan drove (our) hires," explained Pamela Hile, spokeswoman for the $25.7 billion pension fund, in an e-mail. Ms. Hile added "liquidity is a primary concern for the system."

 

Ryan Bisch, a principal at Mercer LLC and the leader for the consulting firm's alternatives boutique in North America, Toronto, was not surprised by P&I's data, saying he has seen "continued interest in alternatives for enhancing returns and embedding inflation protection," particularly in infrastructure.

 

David Holmes, founding partner of Louisville, Ky.-based manager consultant Eager, Davis & Holmes LLC, said in a telephone interview that his firm also has seen a "significant increase in alternative and real estate investments."

 

"The increase in alternatives is due to a desire among institutional investors to reduce risk, diversify and protect against the possibility of inflation," he added, noting investors are merely "choosing a path based on where the opportunities are."

"There's a reluctance to increase allocations in traditional fixed income in a low-interest-rate environment," he said, adding "the volatility of traditional equities makes alternatives and real assets more attractive."

 

According to Eager, Davis & Holmes' Tracker Hiring Analytics data, 2,364 mandates were placed in the first three quarters of 2013, representing $158.8 billion of capital. Of this tally, 40.6% of the total mandates were in alternatives, or 38.5% of the capital.

 

Advanced beta

Dan Farley, a senior managing director of State Street Global Advisors and the chief investment officer for SSgA's investment solutions group, Boston, said in a phone interview that he has seen an increased investor appetite for advanced beta, active investment, hedge funds and emerging markets, because investors are becoming less risk averse.

 

"We've been seeing an increased tolerance for risk. People were especially cautious post-crisis," Mr. Farley said. "Now, they're more willing to take on risk in their portfolio to generate higher returns, which a 50-50 stock-bond mix won't provide."

P&I"s data showed SSgA won 17 mandates totaling $3.5 billion in institutional money during the first 11 months of 2013. The bulk of the firm's mandates during the year have been in traditional assets and defined contribution accounts, the P&I data show.

 

   Read More  

 


About Pensions & Investments
With unmatched integrity and professionalism, Pensions & Investments consistently delivers news, research and analysis to the executives who manage the flow of funds in the institutional investment market. Since its founding in 1973, this continues to be the mission of Pensions & Investments, the international newspaper of money management. Written for pension, portfolio and investment management executives at the hub of this market, Pensions & Investments provides its audience with timely and incisive coverage of events affecting the money management business.


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Private Equity - Add-Ons
Building Out the Platform: 1 + 1 = 3
Duane Morris LLP | Winter 2013/2014

 

 

What strategies does a private equity fund employ to accelerate the growth of a portfolio company in a thoughtful but urgent fashion? Today it goes beyond buying, fixing and selling businesses through leveraged buyouts and instead is increasingly focused on buying "platform companies" and bolting on smaller add-ons, particularly in the middle market. This M&A-intensive process has become successful at accelerating the growth of businesses and creating portfolio companies that will be more valuable at exit through purchase by strategics or larger financial sponsors, or to be taken public. In addition to more quickly creating bigger and better enterprises, the process generates greater value for private equity investors on a faster basis.

 

What has been the performance record for funds that engage in this strategy? Although there has been little research to date, the few studies that exist indicate that there are good reasons for the boom in add-on strategies: they work. Oliver Gottschalg, a professor at the �cole des Hautes �tudes Commerciales in Paris, compared the return multiples of 1,905 European buyouts and found buy-and-build transactions generated lower rates of total losses or capital impairment and a higher proportion of successes as measured by deal multiples (see Chart 1).

 

"I cannot remember the last time I saw a deal book that didn't have a couple of pages talking about buy and build," said Jay Jester of Audax, which gets to how mainstream the business of add-ons and roll ups has become. In North America, addon deals as a percentage of buyouts have shown a steady increase from 36% in 2004 to 52% in 2013 (see Chart 2). For 3Q 2013, add-ons made up 54% of buyouts, and a hit a two-year high, according to PitchBook. The last few years have seen the number of add-on transactions reaching around 60% of the level attained at the peak of the last deal cycle in 2007.

 

 

The steady relative growth in add-on deals indicates that it is indeed an all-weather strategy for creating value-in up and, especially, down cycles. The economic slowdown that occurred with the global financial crisis in 2007 created a necessity to look beyond organic growth strategies and focus on successive acquisitions to more quickly gain scale, take advantage of synergies, and access growth markets.

On a global basis and looking more broadly across deal types also shows that add-ons have consistently trailed buyouts by value but were out in front in growth equity and PIPE deals (see Chart 3).

 

Read More  

 


About Duane Morris LLP
With experienced private equity lawyers across our global platform, coupled with the deep capabilities of more than 700 lawyers across all practice areas, Duane Morris offers the resources to counsel LPs, as well as GPs, on formation of funds and other investment structures; advise LPs on co-investment, direct investment and separate accounts; optimize transactional value for sellers and buyers; support portfolio company operations; and advise owners on operations, strategy, exit alternatives and tax/wealth planning. Our PE Forums and Connections publications contribute to the thought leadership of the industry.


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Quantitative Easing
Distributional Effects and Risks
McKinsey Global Institute | By R. Dobbs, S. Lund, T. Koller & A. Shwayder

 

 

In response to the global financial crisis and recession that began in 2007, the major central banks in a number of advanced economies-in particular, the United States, the United Kingdom, the Eurozone, and Japan-embarked upon an unprecedented effort to stabilize and inject liquidity into financial markets. In the immediate aftermath of the crisis, central bank action was aimed at preventing a catastrophic failure of the financial system. In the years since, central banks have continued to employ a range of conventional and unconventional monetary policy tools to support growth and revive the flow of credit to their economies.

 

There is widespread consensus that the decision to implement these monetary policies was an appropriate-and indeed necessary-response in the early days of the financial crisis given the magnitude of the economic shock to the global economy. More than five years later, however, central banks are still using conventional monetary tools to cut short-term interest rates to near zero and, in tandem, are deploying unconventional tools to provide liquidity and credit market facilities to banks, undertaking large-scale asset purchases-or quantitative easing (QE)-and attempting to influence market expectations by signaling future policy through forward guidance. These measures, along with a lack of demand for credit given the global recession, have contributed to a decline in real and nominal interest rates to ultra-low levels that have been sustained over the past five years.

 

Many academic and central bank studies have found that the measures taken by central banks prevented a deeper recession and higher unemployment than would have otherwise been the case. Estimates from macroeconomic models by the US Federal Reserve, the Bank of England, and others show that, compared with a scenario in which no such action was taken, unconventional monetary policies have improved GDP by between 1 and 3 percent, reduced the unemployment rate by about 1 percentage point, and prevented deflation.1 If the emergency measures employed at the start of the financial crisis did indeed head off an uncontrolled downward spiral of the global financial system, then the macroeconomic value of the damage prevention could be far larger than these estimates indicate.

 

Our research seeks to shed light on the distributional effects of unconventional monetary policies at the microeconomic level-including the impact on governments, non-financial corporations, banks, insurance companies, pension funds, and households. Although there are always some distributional effects from monetary policy, these are likely to be far larger than in normal economic times given the scale of monetary actions in recent years. Specifically, in our research we assess the impact on net interest income for these groups in the United States, the United Kingdom, and the Eurozone, evaluate the effect of low rates on asset prices and any corresponding wealth effect for households, and consider what impact ultra-low rates have had on cross-border capital flows to emerging markets. We conclude with a discussion of potential risks, in the light of this micro research, as either these policies are tapered and interest rates rise, or rates remain low.

 

Our headline finding is that ultra-low interest rates have produced significant distributional effects if we focus exclusively on the impact on interest income and interest expense. Although governments have borne substantial costs generated by the financial crisis and the resulting recession, ultra-low interest rates prompted by monetary policy have substantially lowered their borrowing costs, enabling them, in some cases, to finance higher public spending to support economic growth.  

 

Non-financial corporations have also benefited as the cost of debt has fallen, although this has not translated into increased investment, perhaps because the recession has lowered their expectations of future demand.  Households, in contrast, have fared less well in terms of interest income and expense, although the negative impact on household income may be offset by wealth gains from increased asset prices.

 

Our analysis merits two caveats. In all analysis on the impact of unconventional monetary policies and ultra-low interest rates, we, along with other researchers on the topic, face the challenge of assessing what would have happened if these policies had not been implemented-the so-called counterfactual. This is unknown and indeed unknowable. Nevertheless, we have used a variety of approaches to estimate how the actual outcome would have compared with a situation in which central banks had not acted the way they did. In addition, our microeconomic analysis looks only at the direct impact on specific sectors, not second-order effects across the economy. It seems likely that central bank actions stabilized the financial system, limited the damage from the financial crisis, and dampened the recession, thereby benefiting all actors in the economy.

 

Nonetheless, we believe that examining the microeconomic consequences-even if these were unintended-is useful in understanding the distributional effects and risks of ultra-low rate policies and in shedding light on the future as these policies are reversed.

 

Our major findings include the following:

  • Between 2007 and 2012, ultra-low interest rates produced large distributional effects on different sectors in advanced economies through changes in interest income and interest expense. By the end of 2012, governments in the United States, the United Kingdom, and the Eurozone had collectively benefited by $1.6 trillion, through both reduced debt service costs and increased profits remitted from central banks. Meanwhile, households in these countries together lost $630 billion in net interest income, with variations in the impact among demographic groups. Younger households that are net borrowers have benefited, while older households with significant interest-bearing assets have lost income. Non-financial corporations across these countries benefited by $710 billion through lower debt service costs.

Read More  

 


About McKinsey Global Institute
The McKinsey Global Institute (MGI), the business and economics research arm of McKinsey & Company, was established in 1990 to develop a deeper understanding of the evolving global economy. Our goal is to provide leaders in the commercial, public, and social sectors with facts and insights on which to base management and policy decisions. MGI research combines the disciplines of economics and management, employing the analytical tools of economics with the insights of business leaders. Our "micro-to-macro" methodology examines microeconomic industry trends to better understand the broad macroeconomic forces affecting business strategy and public policy. MGI's in-depth reports have covered more than 20 countries and 30 industries. Current research focuses on five themes: productivity and growth; the evolution of global financial markets; the economic impact of technology and innovation; urbanization and infrastructure; and natural resources..


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Private Equity
Excellence in Private Equity Valuations
Privcap | December 2013 

 

 

Privcap

An executive summary of the Privcap thought leadership series "Best Practices in Private Equity Valuations." In partnership with McGladrey.

Key Takeaways:

          • Institutional investors expect a robust valuation methodology
          • Big gaps in exit value and the last valuation mean room for improvement
          • Improving a valuation methodology often takes an outside expert
          • Minority ownership in portfolio companies present unique challenges
          • The definition of "control" is not uniform

 

 

Institutional investors expect a robust valuation methodology

Valuing a portfolio company is as much an art as science, but investors don't really want to hear it. They want to see evidence that their private equity partners maintain a rigorous methodology.

 

"As auditors, we always try to look retrospectively at how the position was marked, up until the exit," said Colin Sanderson of McGladrey. "We also look at forecasts and actual audited and unaudited numbers over the life of the portfolio company. We want to get a sense of whether that data is being accurately reflected. How have they been providing that to management? Is it considering real-world scenarios? Why did we get an exit above the value we were carrying on the books?"

 

As more firms recognize that investors want solid valuation methodologies in place, they're providing proof that they have them. "We see GPs releasing to LPs a lot more of their underlying data and methodologies," said Darren Friedman of StepStone. "Some firms are completely open-book." Not only are they providing the financials, but also the comp sets they used to determine those numbers. In some cases, firms are even disclosing the three different methods they used to get to that valuation, Friedman noted.

 

If its methods are not producing accurate valuations, a firm should revamp them, Sanderson added. "Auditors love consistency. However, it's very important that the GP has a process in place and evaluates its models based on new information," he said. "If you're not using multiple models, maybe you should. If you're relying too much on an averaging of various methods, maybe you should tweak it."

 

Read More  

 

 

  

About Privcap 
Privcap is a media platform dedicated to delivering high-quality content to investors in private partnerships, focusing both on important investment themes and practices.  Privcap is a producer of, and destination for, high-quality content for participants in the global private capital markets. Through videos, podcasts, articles and supporting content, Privcap delivers valuable context for private capital investment, allowing investors to make better decisions and achieve greater success in the PE asset classes.

 


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About The Newsletter

The Tricap Partners & Co. Newsletter is a monthly publication that covers the opportunities and challenges affecting the financial markets as they pertain specifically to alternative assets.  Written by industry practitioners and journalists, it is a thought-provoking read for anyone wishing to gain greater insight into today's most relevant issues affecting the industry.

 

If you would like to submit an article to be published in a future newsletter, please submit the article to newsletter@tricappartners.com.  

 

Sincerely,

 

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