Editor’s Letter

During 2013, “dry powder” levels grew to over $1 trillion, portending the potential for increased private equity activity in 2014. While the U.S. continues to lead the global recovery, the U.K., Japan, and Europe are beginning to show signs of life. This bodes well for an accelerated pace of economic activity in emerging markets going forward. However, as emerging market and advanced countries are establishing more barriers to globalization, the transmission of recovery from advanced countries to emerging markets may become increasingly blocked. These barriers have had an adverse impact on both global trade flows and, even more important, on global capital flows. This increasingly uncertain emerging market picture suggests that the opportunities for private equity next year may be more favorable in the advanced countries.

The first article in this issue of The Journal of Private Equity, “What Shapes Venture Capital Firms’ Expansion across the Globe? Country-Specific Factors and Firm-Specific Factors” by Hisanori Fujiwara, analyzes the factors that influence venture capital firms’ global expansion. He examines how country-specific factors and firm-specific factors have played an important role in determining the location and type of expansion.

In “Quantitative VC: A New Way to Growth,” John Bhakdi uncovers the seeds of a new venture capital ecosystem that has the capacity to effect dramatic changes in the larger innovation ecosystem. His analysis results in “quantitative VC,” which he defines as a new scientific approach that leverages ecosystems rather than individual startups, thereby providing a new innovation capital infrastructure. This new infrastructure has a multiplier impact for innovation with a significant impact on productivity expansion.

In “Performance Measurement in Private Equity: Another look at the Lagged Beta Effect,” Mark Anson returns to his analysis on the subject begun in 2002. This article extends that analysis by examining whether Fair Value Accounting (FAS 157) had an impact on the lagged beta effect associated with private equity returns. Anson also looks at the effects of size and value, as identified by Fama and French, in index construction, to determine if they have a significant impact on measuring the lagged beta effect.

“Think. Aim. Fire. Now Your Manufacturing Investments Can Manufacture More EBITDA,” by John Bisack, provides a warning and advice to private equity companies to make sure that portfolio companies provide the appropriate key metrics. If not, performance improvement metrics will not really improve performance and returns.

Michael Li-Ming Wong, Thad Davis, and Kelly Austin write about “The Private Equity Trap: How Global Anticorruption Can Ensnare the Unwary Private Equity Potential.” They point out that the risk must be taken seriously and that private equity professionals who fall into these traps unknowingly can nevertheless suffer severe consequences.

For “Analyzing European SPACs,” Elena Ignatyeva, Christian Rauch, and Mark Wahrenburg analyzed the 19 SPACS listed on European stock exchanges since 2005. They show that there is a great heterogeneity in the choice of target companies, particularly regarding financial performance.

In “The Role of Financial Leverage in the Performance of Private Equity Real Estate Funds,” Jamie Alcock, Andrew Baum, Nicholas Colley, and Eva Steiner study a unique dataset in order to examine the performance of a sample of 169 global private equity real estate investment funds across the core, value-add, and opportunistic investment style categories over the most recent property cycle (2001–2011). They find evidence that fund performance is almost directly proportional to the return on the underlying real estate market and that leverage does not enhance performance.

TOPIC: Private equity

F. John Mathis

Editor

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