Monday, July 31, 2006

Blog of the Week: ContraHour

A Handy Cheat-Sheet For KKR and Blackstone Group

Almost every month the private equity industry raises a new record fund and completes a record sized deal. Just last week, KKR, Bain Capital and Merrill Lynch agreed to the largest ever private equity buyout when they bought HCA in a transaction valued at $33 billion.

And these mega deals will likely continue. Last month, the Blackstone Group closed on a $15 billion world wide private equity fund. Not to be outdone, KKR recently announced it is raising a $10 billion world wide private equity fund. To put the size of these funds in perspective, I've pulled a paragraph from the "New Kings of Capitalism" article from the Economist from just a couple of years ago.

...there has been a dramatic growth in the size of private-equity funds, and in the size of the top firms that manage them. Most private-equity firms raise funds as limited partnerships. The firm is the general partner that manages the fund and gets paid an annual fee (a percentage of the money in, or promised to, a fund) and later a large slice of any profits; outside investors (who often lock up their money for up to ten years) become limited partners who share only in the profits.

In 1980, the world's biggest fund (KKR's) was $135m. Today there are scores of funds with over $1 billion each. J.P. Morgan's latest one is currently the biggest, at $6.5 billion, ahead of Blackstone's; Permira has Europe's largest, at around $6 billion at today's exchange rate. A $10 billion fund can be only a matter of time, if only for the fabulous annual fees.

A billion dollar buy-out fund is now relatively small change in the world of private equity so...

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Anonymous Anonymous said...

The world of Los Angeles private equity funds is a fairly rarefied world. The vast majority of these funds are organized as limited partnerships (LP) where the investors are principally institutional investors such as pension funds, banks, and high net worth individuals.The general partner (GP) identifies the opportunity, calls money from its lLP's (also called a drawdown or takedown) up to the amount committed and can do so at any point until the fund is liquidated. When an investment is liquidated, the GP distributes proceeds to the LP's in kind or in cash. The compensation from LPs to GP's consists of a management fee, plus a fraction of the profits called the carried interest.

3:36 AM  

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