Deck 9: The Private Equity Market

Question 1

Research by Eric Stafford has showed that individual investors can't really replicate the returns of private equity managers.

Answer 1

False

Question 2

Officer et al. found that target companies received higher takeover premiums in club deals.

Answer 2

False

Question 3

Examples of the types of institutions that become limited partners in private equity funds include:

A) Insurance companies
B) Pension funds
C) Endowments
D) All the above True or False Questions

Answer 3

D

Question 4

Carried interest refers to the gains on transactions by private equity firms.

Question 5

Which of the following is a way that private equity firms can extract money from the targets they take over:

A) LBOs
B) Dividend recapitalizations
C) Additional acquisitions
D) All the above
E) None of the above

Question 6

Answer: Glode and Green theorize that the findings of Kaplan and Schoar may be due to insufficient disclosure by private equity firms.

Question 7

Phalippou and Gottschalg analyzed the same return data as Kaplan and Schoar but found that private equity returns trailed the S&P 500 when unexited deals were taken into account.

Question 8

Drexel Burnham and Lambert and Michael Milken were pioneers in the development of the hedge fund industry.

Question 9

Harris, Jenkinson, and Kaplan's research showed that private equity returns outperformed the market by over 3% annually.

Question 10

Research by Braun, Jenkinson, and Stoff showed that private equity returns are not only persistent but that persistence remained steady as the industry has grown.

Question 11

Private equity firms have typically been compensated according to the following "formula":

A) 2% of invested capital
B) 5 and 1
C) 2 and 20
D) None of the above

Question 12

Kaplan and Schoar found which of the following with respect to private equity firms?

A) Growth in the industry
B) Decline in the industry
C) Persistence in returns
D) All the above
E) None of the above

Question 13

Private equity firms used to be referred to as LBO firms.

Question 14

In recent years private equity firms have increasingly been able to negotiate "covenant lite" loans.