Private Equity vs Venture Capital

• Private Equity (PE) refers to investing in the equity of companies that are not publicly traded, typically through specialized funds, also known as capital privado or capital riesgo.
• PE involves direct negotiation with company owners to acquire a significant stake, often a majority or controlling interest, to boost growth and create long-term value.
• PE investments usually span several years before resulting in a sale or stock market launch.

PE vs. Venture Capital (VC)

• Venture Capital (capital emprendedor) and Private Equity are distinguished within private equity.
• Venture Capital invests in emerging companies, startups, or early-stage ventures with high growth potential.
• Venture Capital provides seed capital or initial expansion funding.
• Private Equity typically focuses on more mature and developed companies with established cash flows.
• Private Equity aims to take significant stakes to optimize performance.
• VC funds initial value creation in new companies, while PE fund accelerates or recovers value in established companies.

PE Strategy types

• Buyouts (LBO/MBO) involve leveraged acquisitions of mature companies.
• Buyouts acquires a majority stake or complete control, financing the acquisition with a high proportion of debt, also called (Leveraged Buyout or LBO).
• Target companies serve as collateral for the debt.
• Buyouts intend to improve performance and later sell the company for profit.
• Management Buyout (MBO) is a variation where the current management team participates in the leveraged buyout of their own company.
• Financial leverage amplifies capital returns but augments risk.
• Growth Equity involves injecting capital into established mid-sized companies that need funds for expansion to expand, without fully acquiring control.
• Growth Equity typically takes significant minority stakes while allowing the existing management team to handle daily operations.

Strategies for venture capital

• Venture Capital is sometimes seen as separate from traditional PE, many risk funds include VC as one strategy.
• Oriented towards emerging companies in initial phases like seed or launch.
• Venture Capital funds takes minority participations in startups with high disruptive potential
• Venture Capital is aware the majority of those investments have high risk and low liquidity
• Venture Capital searches for elevated returns in limited companies that achieve exponential growth.
• Distressed/Turnaround includes distressed funds compran compaías to restructure and reorganize operations.
• Funds in financial difficulty or with possible imminent bankruptcy
• Distressed opportunistic strategies require executional capabilities for deep restructuring rapidly.
• PE available strategies also include second hand funds
• Funds of the second hand (secondary funds) buy holdings in portfolios or existing funds.
• Strategies called mezzanine (intermediate funding between debt and capital).
• Buyouts, Growth, venture and Distressed are the main categories.

Importance of sector in financial markets

• Private Equity plays a vital role in the modern financial system.
• Numerous amount of companies now continue to operate as private companies due to the abundancy of private capital.
• The number of public companies has diminished, leaving traditional public markets lacking access.
• The decrease in public stocks has increased appeal to private equity (PE)
• Private Equity funds drive massive amounts toward economies in private markets.
• In 2023, assets in global private markets reached aprox $13 billion
• Private Equity funds increased approximately 20% from 2018.
• The funds expansion reflects major investors increasing assets searching for greater diversification and returns.
• PE (private equity) fulfills role as efficiency driver for company financing
• Private Equity companies that need or cannot go toward stock market.
• Private Equity offers discipline and prof management.
• Private Equity return more costly for the stock markets.
• Private Equity drives capital, influencing companies and investor's ability to capture value

Historic Evolution and Comparative rentability

• Historical evolution and comparative rentability
• Private equity follows a clear positive trend in previous decades.
• First venture capital dated back in the 1940-50s
• levered buyouts came in the 1980
• Private equity scaled through the 2000s
• KKR's popularized levered acquisitions during 1980s.
• Multi Million purchases happened in 2000.
• Financial crisis of 2008 had a challenge now called difficult.
• Low interest in the 2010-2019, lead to expansion in unprecedented abundant liquidy, investors searching and valuation multiples.
• Investment increased, boosted toward liquidity
• Industry saw peak, correction 2022-2023.
• Interest increase saw an exponential growth and influence.
• High risk capital vies for public markets regarding business financing.

Historic Rentability vs Public Markets

• PE's history gives positive revenue versus changeable income.
• Funds have shown consistent stock market indexes.
• USA Index Cambridge Assoc 12.8 in the last 25 years versus 7.5%
• Buyout funds had 15% annual compared 5 to 7% Public.
• Long term investors find equity is greater benefit vs normal stock market.
• Performance measures include metrics
• IRR (internal rate of return) discount equals zero, annualizing considering moments when money happen.
• A great IRR has a reduced IRR.
• Is sensitive to money flow time
• MOIC ( multiples on Investment capitalized, TVPI total volume.
• Calculated by the value realized capitalization
• Measures simple amount to invested funds.
• DPI distribute how pay happens in effective investors
• Returns is greater for public market including risk.
• Investor require premium
• Historic evident persist liquid premium
• Private actives are positive compensated to immobilized capital.
• Prime receives even capital.

Illiquidity impact and Investment horizon

• Private Equity creates horizon long, little visions investing.
• The equity has 10 years, income apparent, J curve.
• IRR kicks low and rises to corporate values.
• Investors are patients, they need to anticipate big discount stock markets
• Lack liquify is an obligation view vision for long term.
• Lack liquify equals complex to value investments
• Managers give value of estimated form, produced apparent little valuable.

Key Factors of Superior performance

• Key Factors that show performance
• Private Equity creates valued model; Leveraged Finance: High Debt, buyouts.
• A purchase using: 60% to 70% Debt, 30% to 40% capitalization.
• The increase of borrowed companies amplifies return on capital.
• Introduces disciplines to save payment and reduce costs.
• Operation/ Strategic creation: The greatest financial companies improve operations
• Implement increase in revenue, and make capital efficient. This can include replacing CEOs, improve costs and expand zones.

Factors that add growth

• Additions help grow and merge to potentate innovation. Its all addition of internal consultancy help grow more companies and improve operational management.
• Most of all created value
• Over a third from intrinsic value that says, the growth is a key
• EBITDA (earnings before interest, taxes depreciation and amortization), column based.
• Generate better factors is elevated between managers
• Sector funds select objectives, execute value for super returns.
• Actives are well selective that are easier to locate.
• Elite funds make selective acquisitions, advantages of selecting companies.
• Elite funds take information from niches where they understand others, using connections.
• Due Diligence allow to view hidden risks
• Elite deals only do it if potential that generates advantage arbitrator.
• Private markets offer less symmetry, structures transactions and negociates more to what they sell.

Financial structure and beneficial fiscal

• Private Equity also benefited to economic fiscal, benefits for equity revenue, taxes capitals pay less revenue.
• Fund managers receive compensation for capital increased revenue, that incentivates revenue more.
• The model impels performance; Managers invest money (1 to 2% aligning to investors).
• Key people establish actional actions to increment value of the team and goals.
• Disciple corporate has high efficient value.

Return anomalies that are sustainable

• High returns are due to the financial markets?
• Are sustained in largo plazo to value extra?.
• A skeptic vision gives revenue assuming risk, alpha goes away.

Academic results

• PE combines public debt, period small revenue, also, are not uniform.
• Top portfolios had indices fallen to below 10 years
• suggests to invest equity beat the market.
• Must pick right funds to get that excess.

Expert results

• Analytics can search different points to gain better portfolio
• Trends show IA/ data helps better management.
• Market emerging new innovative revenue.
• Collaboration between high investors to help.

Sustainability of returns

• High returns, are dependent of adaptating the industry.
• Competition has increased acquisition prices to maxes, revenue has diminished.
• Easy sources for funds have reduced.

Private markets

• Private markets have become more efficient
• High capital are used and squeezed.
• Some low trend medium earnings
• macroeconomic and interest, high impact on the equity. -Era of money for LBO cheapen funds find revenue increase.

Macroeconomic environment on interest and fees

• Lower rate increased revenue.
• Environment shows incertitude of increases, can increase.
• Financing may be costly, high debt reduces usage, high rate cools difficult operations.
• Reduced multiple, lower fund value reduced.

Academia perspective and Evidence for Future

• Re-calibrate expectations.
• Stable in average.
• Study finds large dispersion
• Best investors have top-tier
• 2024 will be beat rent variable.
• 26 years, bought outs, are beaten with renting.

Democratization Private equity Venture capital

• Inversioners ultra-riches fund close
• Private equity democratized.
• Easy access for anyone to investors markets.
• High heritage destined savings equal capital.
• Increase of clients, many clients leave out big markets
• 2.3 billones private market 2025 .

Legislative modifications

• Europe create frameworks for managers.
• Markets are equal and opened in markets
• Inversioners had low fees.
• A high client help the industry efficiently.

Nature returns

• A high revenue, the clients had to save more.
• Valued portfolio
• Is more close a mutual clients.

Final Results

• democratatizacion breaks institutions monopolio
• Savings destined
• Reconfigures sector
• new clients lower costs

Corporate Equity

• Corporate clients attract and recommend
• Can offer High compensation