The Challenge of using Standard Risk Management in Private Equity

Venture capitalist and buy-out funds are often considered experts at investing in high-risk projects and companies. To be successful investors, private equity funds must therefore manage the many aspects of risk that are associated with investing in non-public enterprises. This study examines how Indian private equity funds manage several dimensions of risk in comparison to non-Anglo-Saxon funds. We analyze risk management preferences in Indian and Franco-German funds in pre- and post-investment stages. The results, which are discussed in detail, show significant differences between the two groups.

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Interaction between Financial Risk Management and Value of the Firm among Private Equity Firms in Frontier Markets: A Theoretical Perspective

journal of accounting finance and auditing studies (JAFAS) ◽

10.32602/jafas.2019.29 ◽

2019 ◽

Vol 5 (3) ◽

pp. 30-41

Author(s):

K. Florence Waitherero ◽

Muchina S. Wanyoike

Keyword(s):

Risk Management ◽

Financial Risk ◽

Private Equity ◽

Theoretical Perspective ◽

Financial Risk Management

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Risks, Returns, and Optimal Holdings of Private Equity: A Survey of Existing Approaches

Quarterly Journal of Finance ◽

10.1142/s2010139212500115 ◽

2012 ◽

Vol 02 (03) ◽

pp. 1250011 ◽

Cited By ~ 6

Author(s):

Andrew Ang ◽

Morten Sorensen

Keyword(s):

Private Equity ◽

Agency Problems ◽

Limited Data ◽

Risk And Return ◽

Compensation Contracts ◽

Academic Literature ◽

Equity Investments ◽

Standard Risk ◽

Performance Estimates ◽

Private Equity Investments

We survey the academic literature that examines the risks and returns of private equity investments, optimal private equity allocation, and compensation contracts for private equity firms. The irregular nature and limited data of private equity investments complicate the estimation and interpretation of standard risk and return measures. These complications have led to substantial disparity in performance estimates reported across studies. Moreover, studies suggest that the illiquidity and transaction costs inherent in private equity investments have substantial implications for optimal holdings of these assets. While incentive fees in private equity address moral hazard and information agency problems, total fees in private equity investments are very large and incentive fees account for a minority of total compensation.

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The role of risk management in corporate governance: Guidelines and applications

Risk Governance and Control Financial Markets & Institutions ◽

10.22495/rgc7i4c1art1 ◽

2017 ◽

Vol 7 (4-1) ◽

pp. 92-99

Author(s):

Hugh Grove ◽

Maclyn Clouse

Keyword(s):

Risk Management ◽

Corporate Governance ◽

Financial Reporting ◽

Boards Of Directors ◽

Private Equity ◽

Limited Liability ◽

Cash Flows ◽

Financial Statement ◽

Coverage Ratio

Risk management should be a key concern of board members to enhance corporate governance in any organization. Eleven key numbers, ratios, and models were advocated in this paper for risk management analyses, including an analysis of their variability with graphs. They are applied to Kaisa, a Chinese property developer, located in Shenzhen but incorporated with limited liability in the Cayman Islands. The importance of such risk management analyses was demonstrated in this paper as Kaisa destroyed $12.9 billion in four different types of investments: $2.2 billion in stock market value, $0.3 billion in private equity investments, $2.5 billion in global bonds, and $7.9 billion in Chinese short-term and long-term debt. Thus, the use of key financial statement metrics, including fraud models and ratios, has been shown here to provide enhanced corporate governance with risk management guidelines and applications. Boards of Directors need to pay attention to key financial statement metrics, which have been shown to work over and over again, as with Kaisa in this paper. These key metrics usually start with operating cash flows which then may indicate problems with debt service (the fixed charge coverage ratio) which then may lead to bankruptcy predictions by the Altman bankruptcy model. To cover up such survival problems, companies often resort to earnings management and even fraudulent financial reporting which are typically red flagged by the quality of earnings, the quality of revenues, the new fraud model and the old fraud model.

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Risk management of the investment marketing on diversified enterprises

Economics ecology socium ◽

10.31520/2616-7107/2019.3.4-5 ◽

2019 ◽

Vol 3 (4) ◽

pp. 35-44

Author(s):

Oleksandr Kalinin ◽

Viktoriya Gonchar ◽

Žaneta Simanavičienė

Keyword(s):

Risk Management ◽

Financial Management ◽

Financial Stability ◽

Private Equity ◽

Management Program ◽

Marketing Management ◽

Investment Efficiency ◽

Conservative Strategy ◽

Marketing Activities ◽

Investment Capital

Introduction. In modern economic environment, obtaining financial stability in the long run is one of the conditions for competitive advantages. The condition for achieving stability is the improvement of the risk management program, which is based on a balanced system of formation and use of available resources. Aim and tasks. The aim of this paper is to explore the trends of risk management of modern investors in the selection of objects for placement of capital and formation a strategy of marketing management for the diversified businesses. The tasks of the paper are to research the theoretical aspects of risk management and planning; to analyze the risk management on the diversified companies; to develop solutions to improve the system of marketing management on the diversified companies in the context of risk management. Results. Investment marketing activities are one of the main ways to develop and increase the competitiveness of the economy and the individual companies operating in it. Marketing activities allow you to attract investments that support the implementation of the company's development strategy, increase its assets, develop innovative products, enter promising markets, ensure development in a highly competitive environment and stimulate the company's capitalization in the future. The dynamic growth of a diversified company is largely possible through diversification of investment capital and raising investment funds through the placement of shares in the financial market. An increase in the investment efficiency of a diversified company is possible only if there is a system of control over the economic activities of its individual business lines, otherwise it is highly likely that irrational investment decisions will be made and investment capital eroded due to the lack of proper control over its planning, placement and subsequent management. Conclusions. Modern diversified enterprises have to show investors that firms are in the sphere of financial management. This will help with the main risk of diversification – undervaluing by fund market. Modern conglomerates on the one hand should be present in the most popular industries among investors like technologies or bioengineering but on the other hand they have to concentrate its activity on the principles of private equity or leveraged buyout firms. It means that firms have to actively use loan capital after the recession and use their equity as more conservative as possible. It will allow getting financial results as good as private equity funds but for the public conglomerates it will allow to keep present investors and to attract new ones with conservative strategy.

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