24/02/2024

Private Equities

 

Private Equities

With a 30-year track-record of investing in private equity assets, we provide flexible solutions that support the growth of promising businesses.

Philosophy

Our global reach and in-house expertise, together with our network of relationships, enable us to unlock solutions to complex situations.

We are a long-term investor, which gives us the flexibility to act as a stable partner through market cycles.

Process

The flexibility of our mandate means that we are able to invest at all points in the capital structure and craft innovative solutions that support value creation strategies.

Our goal is to build collaborative and enduring relationships with our investment partners and the companies in which we invest, based on closely aligned interests.

Portfolio

We have an extensive network of long standing relationships with leading global and regional private equity firms, with which we have built broad and mutually beneficial partnerships encompassing both direct and fund investments.

PIC: Supporting an industry leader for further growth

Over recent years, ADIA’s Private Equities Department has been actively reviewing opportunities in the UK’s pension insurance sector. The industry has experienced significant growth, driven by increasing demand from pension schemes looking to de-risk their defined benefit pension obligations.

Pension Insurance Corporation

UPL — Arysta: Facilitating a major corporate partnership

In July 2018, ADIA and alternative asset management firm TPG agreed to invest $600 million each in UPL Corporation Limited (UPL), the international operating company of UPL Limited, a global agrochemical solutions provider listed on India’s National Stock Exchange.

UPL offers a broad range of crop protection solutions

Galderma

In October 2019, a consortium co-led by a wholly owned subsidiary of ADIA and private equity firm EQT Partners concluded the acquisition of Galderma from Nestlé for CHF 10.2 billion.

Research centre where Galderma crafts its range of medical and skin health solutions

Alight

In 2017, ADIA teamed up with Blackstone, one of its core relationships in the private equity space, on the successful carve-out of a subsidiary of the U.K.’s Aon plc for $4.8 billion, including a potential earn out.

ADIA leads the carve-out of Alight Solutions, a leading U.S.-based provider of integrated benefits payroll and cloud solutions

Our people seek out opportunities on a regional basis, targeting our priority sectors of Financial Services, Healthcare, Industrials, Technology and Consumer.

Portrait of Nancy Ku. Portrait of Ahmed AlNeyadi.

It’s important for us to appreciate the cultural and business environment nuances of the markets we invest in, and that’s particularly the case in Asia Pacific which is such a dynamic and diverse region. Our teams include country specialists who are sensitive to local considerations and have an in-depth understanding of how these markets work. This provides us with insights and helps us build new relationships and strengthen existing ones, which means we can access a broader opportunity set.

ADIA benefits from an extensive network of relationships from across the private equity world and, as a result, we have excellent access to other investors, bankers, subject matter experts and many others. We enjoy an active, ongoing dialogue with them, we travel extensively and also host them here in Abu Dhabi, which gives us tremendous visibility on what is happening in private equity on a global scale.

Private Equity vs Hedge Fund

Private equity can be defined as the funds that the investors take into use for the acquisition of public companies or to make an investment in private companies, On the other hand, hedge funds can be defined as privately owned entities that raise funds from the investors and then invest them back into financial instruments bearing complicated portfolios.

A private equity fund is usually taken into use in cases like the acquisition of companies, expansion of an entity, or to strengthen the balance sheet of an entity. In private equity, investors who have shown an interest in funding businesses are offered a prospectus for fundraising. Hedge funds are formed as limited liability Limited Liability Limited liability refers to that legal structure where the owners’ or investors’ personal assets are not at stake. Their accountability for business loss or debt doesn’t exceed their capital investment in the company. It is applicable in partnership firms and limited liability companies. read more corporations for safeguarding the investors and the managers from the lenders if at all, the funds are bankrupt.

Private-Equity-vs-Hedge-Fund

You are free to use this image on your website, templates etc, Please provide us with an attribution link How to Provide Attribution? Article Link to be Hyperlinked
For eg:
Source: Private Equity vs Hedge Fund (wallstreetmojo.com)

What is Private Equity?

Private equity is the investment capital invested by any high net worth individual in a firm with the aim of acquiring equity ownership in the firm. These capitals are not quoted on a public exchange. The capital can be used for expanding the working capital of the company, to strengthen the balance sheet Balance Sheet A balance sheet is one of the financial statements of a company that presents the shareholders’ equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner’s capital equals the total assets of the company. read more , or to bring new technology in the company to increase output. Institutional investors and accredited investors are a significant part of the private equity in any company because they have the ability to commit a large sum of money for a longer duration of time. Often, private equity is used to convert a public company into a private one.

What is Hedge Fund?

Hedge Fund is just another name for Investment Partnership Investment Partnership An investment Partnership is a form of business partnership wherein at least 90% of its assets are the investments in intangible assets like bonds, stocks, or options & at least 90% of the income is acquired from that asset type. read more . The meaning of the word ‘hedge’ is protecting oneself from the financial losses; thus, Hedge Funds are designed to do so. Although a risk factor is always involved, it depends on the return. The more the risk, the higher is the return. Hedge Funds are alternative investments done by pooling funds involving several strategies to earn high returns for the investor. Hedge funds are not regulated by the securities and exchange commission and can be used for a range of securities compared to mutual funds. Hedge Funds work on the Long-Short strategies, which means investing in long positions, i.e., buying stocks as well as short positions Short Positions A short position is a practice where the investors sell stocks that they don’t own at the time of selling; the investors do so by borrowing the shares from some other investors to promise that the former will return the stocks to the latter on a later date. read more , which means selling stocks with the help of borrowed money and then buying them again when the price is low.

Private Equity vs. Hedge Funds Infographics

Private-Equity-Funds-vs-Hedge-Funds-info

You are free to use this image on your website, templates etc, Please provide us with an attribution link How to Provide Attribution? Article Link to be Hyperlinked
For eg:
Source: Private Equity vs Hedge Fund (wallstreetmojo.com)

Key Differences Between Private Equity and Hedge Funds

  • Private equity funds are the investment funds that are typically owned by limited partnerships to buy and restructure companies that are not traded publicly on the stock exchangeStock ExchangeStock exchange refers to a market that facilitates the buying and selling of listed securities such as public company stocks, exchange-traded funds, debt instruments, options, etc., as per the standard regulations and guidelines—for instance, NYSE and NASDAQ.read more . In contrast, hedge funds are privately held, and these pool investors’ funds and then reinvest the same into financial instruments that have a complicated portfolio.
  • Private equity funds invest in companies that can provide higher profits over a more extended period. In contrast, hedge funds are used to invest in assets that yield good ROI or return on investment over a shorter period.
  • Investors in private equity funds have the liberty to invest funds as and when required, whereas, in hedge funds, the investors will need to make investments all in a single go.
  • Private equity funds are closed-ended investment funds, whereas hedge funds are open-ended investment funds.
  • Private equity funds do not have any sort of restriction on transferability over a specified time frame, whereas hedge funds have restrictions on transferability.
  • Private equity funds are less risky in comparison to hedge funds.
  • The investors in private equity funds act as active participants, whereas the investors in hedge funds are vested with the passive status.
  • Funds life is contractually defined in private equity funds, whereas there is zero limitation on funds’ life in the case of hedge funds.
  • Investors in Private equity funds have a higher level of control over operations and asset management, whereas hedge funds have a lower level of control over assets.

Private Equity vs. Hedge Fund – Structural Difference

Private equity comes under the category of closed-end investment funds, which are generally suitable for the investments which cannot be marked to the market Marked To The Market Marking to market (MTM) is the concept of recording the accounts, i.e., the assets and liabilities at their fair value or at the current market price, which varies with time rather than historical cost. It helps to represent the company’s actual financial condition. read more and have restrictions on transferability for a duration of time while Hedge Fund exists in the category of traditional open-end investment funds, which are generally suitable for the investment vehicles which have an established trading market. There are no restrictions regarding the transferability; that is, assets are available to be marked to market readily.

When speaking of the term, hedge funds do not have any specific term, whereas Private equity has a term of 10 to 12 years, which can be extended further by the Manager/GP entity with the consent of all the investors.

When do you have to release money?

There is no fixed time duration as to when your money can be called, whereas, in the case of Hedge funds, you have to release the committed amount immediately from your savings. This amount is invested in the marketable securities Marketable Securities Marketable securities are liquid assets that can be converted into cash quickly and are classified as current assets on a company’s balance sheet. Commercial Paper, Treasury notes, and other money market instruments are included in it. read more which are traded in real-time.

Performance Measurement and Realization

The performance of Private equity is measured in terms of Internal Rate of Return (IRR), and usually, a minimum hurdle rate Hurdle Rate The hurdle rate in capital budgeting is the minimum acceptable rate of return (MARR) on any project or investment required by the manager or investor. It is also known as the company’s required rate of return or target rate. read more is applicable to Private Equity. While in Hedge funds, returns are immediate and sometimes for gaining more incentive fees, performance is measured according to a benchmark.

Performance realization for private equity is generally after the hurdle rate has been achieved, and mostly negative performance is reported by private equity during the early years. The performance of Hedge funds are realized continuously while the investment of assets.

Allocations and Distributions

Some significant differences exist between Private Equity and hedge funds in terms of the allocation and distribution of the fund between investors and fund managers. In private equity, distribution of portfolio liquidation Liquidation Liquidation is the process of winding up a business or a segment of the business by selling off its assets. The amount realized by this is used to pay off the creditors and all other liabilities of the business in a specific order. read more carries on until the investor has received the amount he invested and sometimes “preferred returns” are also received, which are calculated as some percentage of investor’s contributed amount which is further distributed among investors and fund manager, generally, in the ratio of 80-20. A hedge fund investor never recovers the amount invested until the fund is terminated due to some reasons, or he deliberately withdraws from the funds.

Fee Comparison

Fees of Private Equity are evaluated on several assumptions such as investment period, fund life, average holding period, carry percentage, and maximum percentage funded. Private equity fees are two-tiered. Tier 1 is of the annual fee of 1.5% on committed investment during the first five years and then 1.0 % after five years.

The most common fee structure for the Hedge fund Hedge Fund A hedge fund is an aggressively invested portfolio made through pooling of various investors and institutional investor’s fund. It supports various assets providing high returns in exchange for higher risk through multiple risk management and hedging techniques. read more is a 1.5% fee for management and a 20% fee based on performance. Hedge fund usually earns performance fees on the first dollar of profit. In contrast, performance fees in Private equity are not earned until the target of preferred return is achieved by the investor. Preferred return in Private Equity is the reason behind the lower fees.

Both exist to make money out of the investments, and a high-risk factor is involved in both the funding options. It is crucial to assess the differences between the two and choose accordingly.

Comparative Table

Basis of comparison Private Equity Funds Hedge Funds
Definition Private equity funds are the funds that are used by the investors for making an investment in private entities or acquisition of entities that are publically enlisted on the stock exchange. Hedge funds are all about the private limited companies raising funds from the investors and then reinvesting them back into financial instruments that have a risky portfolio.
Time frame with respect to investment Private equity funds is all about making an investment in companies that are capable enough of offering substantial returns over a longer period of time. In other words, private equity funds invest in portfolios that can yield returns over a longer period. Hedge funds focus on making an investment in companies that are capable of offering substantial profits on ROI (return on investment) in the nearing time. In other words, hedge funds seek to make an investment in portfolios that can yield return within a shorter period of time.
Restrictions of transferability Private equity funds are closed-ended Funds Are Closed-ended A closed-end fund refers to a professionally managed fund whereby an investment company issues the initial public offering to raise capital. Later, these stocks are exchanged in the open market among the shareholders like other shares. Such investments provide better returns than the open-end funds. read more investment funds that have restrictions with respect to transferability. However, these restrictions are applicable only for a particular period of time. Hedge funds are open-ended investment funds that do not really have any sort of restriction on transferability.
Capital investment The investors opting for private equity funds will need to invest the capital as and whenever called upon. The investors opting for hedge funds will need to make a one-time investment only.
Level of risks Private equity funds are less risky as compared to hedge funds. Hedge funds carry higher levels of risks since these emphasize more on deriving huge returns and that too within a shorter period of time.
Taxes The gains earned in private equity funds are not subjected to tax rates. The gains earned in hedge funds are subjected to taxes.
Level of control over assets Private equity funds have a greater level of control and influence over asset management Asset Management Asset management is a method of managing funds and investing in both traditional and specialized products in order to generate returns consistent with the investor’s risk tolerance. read more and operations. The investors of a private equity fund can actively participate in changing business strategies, implementation of governance, and initiating operational improvements. Hedge funds have a lesser level of control over assets, and these also do not have any voting powers. It is because of the fact that hedge funds are usually minority investors that have little or zero control over the investments.
Term In private equity, funds’ life is contractually defined. In hedge funds, there is zero limitation on funds’ life.
Stakes held Small stakes in companies that are publically listed on the stock exchange; Significant stakes in companies that are closely held;
Management fees 1 to 2 percent of assets that are actively managed; 1 to 2 percent of the assets that are under management;
Investment horizon These are usually long term. Hedge funds are generally short term.
Level of participation The investors are active participants in a private equity fund. The investors are vested with the passive status in a hedge fund.

Conclusion

Private equity funds, as the name implies, is all about making an investment in private companies through direct investments or funds, whereas, in hedge funds, investors can choose to invest and trade in different types of financial securities and markets through leveraging or short selling. The level of risks in hedge funds is way higher as compared to private equity funds. The gains earned from the private equity funds are exempted from tax, whereas the gains earned from the hedge funds are adjusted for taxes.

Recommended Articles

This article has been a guide to the Private Equity vs. Hedge Fund. Here we discuss the key differences between private equity and hedge fund to help you invest your money. You can learn more from the following articles –

Reader Interactions

Comments

Priyank says

Will written and easy to understand. Thanks for writing this up.

Dheeraj Vaidya says

Thanks for your kind words!

Sudhir says

Located your article on CFA VS. CAIA.

Pls ignore my earlier request.

Thanks and Regards,

Sudhir says

Request your inputs on CFA vs. CAIA.

neeraj says

Awesome in depth article

Dheeraj Vaidya says

Источник https://www.adia.ae/en/investments/private-equity

Источник https://www.wallstreetmojo.com/private-equity-vs-hedge-fund/

Источник

Источник

Добавить комментарий

Ваш адрес email не будет опубликован. Обязательные поля помечены *