Private equity firms: where do they get their money?

Training course provider: All right, one of the other things on our list was – when we’re looking at private equity, whose money is it? There’s a slide in your pack – don’t look at it. Whose… whose money are they playing with? Probably always a good business to be in when you’re playing with other people’s money. Where does the money come from though? Where are they actually getting their money from? What sort of people?

Pension funds invest in private equity deals

Delegate: Pension funds.

Training course provider: Pension funds. Do you have a pension, Ollie?

Delegate: I have a SIPP [Self Invested Pension Plan].

Training course provider: You’ve got your own pension, and the bad news is that these guys are playing with some of your money… who’s your SIPP with? Yeah, so a well-known pension firm. And what do you imagine that they’re investing most of it in?

Delegate: It’s all… I decide what it’s in.

Training course provider: Oh, you decide. Oh because it’s a SIPP and you get to choose what it’s in. What are…what are you betting on at the moment?

Delegate: Equities.

Training course provider: Equities. Generally? Broad spread, very narrow spread?

Delegate: US, UK. Some emerging markets as well.

Training course provider: US, UK spread. Well I’m not as sophisticated with my.pension fund. Some emerging markets. I’m not as sophisticated as you are. I don’t manage my own fund, somebody else does it, and it’s in a broad spread of equities – they might have some property, they might have some fixed income, some bonds there. They’ll have a very small tranche perhaps that they put into private equity. But you’re absolutely right; some of the money coming from pension funds. David, somewhere else that money might come from? That’s the obvious one. Who else is active in the private equity world?

Sovereign Wealth Funds are investors in private equity deals

Delegate: Sovereign Wealth Funds.

Training course provider: Sovereign Wealth Funds: big one. Yes, so these big international funds. Can you… can you think of any countries in particular?

Delegate: The Singapore government.

Training course provider: The Singapore one is one of the world’s biggest.

Delegate: China.

Training course provider: China as well…. CITIC

Training course provider: Qatar as well. Abu Dhabi. OK, so these are some big investors. We’ve got a slide in your pack about some of the other sources of money as well. We’ve talked about the pension funds and in that lump we could have the insurance companies.

Private equity investors

Banks may allocate some of their funds for private equity investment

Training course provider: Sometimes banks have their own private equity businesses, although that’s tended to dwindle over the years. Can anybody name a bank that’s got a private equity business?

Delegate: Barclays.

Training course provider: Barclays Private Equity. Absolutely. Anybody else?

Delegate: Lloyds.

Training course provider: What’s that?

Delegate: Lloyds.

Training course provider: Lloyds Development Capital is another one that’s well known in the UK. Any others? That’s… that’s the two that spring to mind, but…

Training course provider: Some of them have sold them off.

Large companies may allocate some of their funds to private equity investments, as may international and government development agencies

Training course provider: Sometimes on my courses I get people who are working inside corporates in private equity-type activities, they have private equity divisions. Do you know of any corporates that have got private equity funds? Delegate: GE.

Training course provider: GE. GE has. Any others? I think Siemens has. I live in Cambridge, I see…

Training course provider: Well Intel certainly has, perhaps Nokia has, I don’t know. So there’s a few of them out there. Sometimes international agencies as well to facilitate development, OK. And sometimes in the UK here we’ve got regional Government; the GLA, here in London, has got… got one as well. All right.

More private equity training course material

Next the introduction to private equity course considers challenges firms have faced when raising funds.