Merry Christmas!

Hopefully Santa has been kind to everyone this year, and what a year it’s been!  The good news this holiday season is that 2008 is almost over.  In times like these it’s nice to retreat to the warm, fuzzy feeling that Christmas can evoke in people…ok, maybe the warm, fuzzy feeling has to do with the egg nog but let’s not be picky.  

Here’s a little Bing crooning about the way Chistmasses should be:

Twas the Night Before Christmas…

To get you in the spirit for your holiday partying, here’s the short film Bloody Olive by Belgian director Vincent Bal.  I’m a fan of the film noir genre and Bal does it nicely with this piece.  Not directly PE related, but it does show the ramifications of business relationships gone horribly awry:

Geographic Breakdown of U.S. Private Firms and Portfolio Companies

I get asked a lot by the non-American students as to where the Private Equity firms are focused in the States, and now Theo O’Brien from Private Equity Blogger has put together data from Private Equity Info into some nice, easy to read tables and pie charts so answering that question is a whole lot easier:

• Private Equity Firms and Portfolio Companies by U.S. State

The firms themselves are not very spread out across the map with three states (New York, California, and Illinois) being the home to nearly half the PE houses in the country, and the top six sates (add Texas, Massachusetts, and Connecticut) are where over two-thirds of the firms hang their hat. The portfolio companies themselves have a much more even level of distribution with only California sticking out in double digit locality.

Delphine Inesta Joins Crédit Agricole Private Equity (CAPE)

Alumni News: HEC Alumna Delphine Inesta (H.2003) has just joined Crédit Agricole Private Equity (CAPE)’s special situation department as investment manager where she will focus on distressed companies. Congrats!

The Bernie Madoff Game

The folks over at BreakingViews have set up this handy-dandy little Ponzi scheme calculator where you too can whittle away the wintertime hours with visions of being the next Bernie Madoff:

• The Bernie Madoff Game

BDO Stoy Hayward Survey: Small Quoted Companies Feel Private Equity Has More to Offer

According to a recent survey by BDO Stoy Hayward (which is the British member firm of BDO International, the fifth largest accountancy services firm in the world), smaller quoted companies (SQCs for the uninitiated) feel that private equity has more to offer than the public markets. This sentiment derives from that most SQCs (69% of them) feel the stockmarkets undervalue their business when listed.

66% of SQCs surveyed believe that the private equity funding model is better than the public markets as it incentivizes management and 67% feel that PE is better at understanding smaller companies. Moreover, 49% of SQCs said private equity would be better than the capital markets at investing for growth and acquisitions.  Most importantly for dealmakers, 32% of those SQCs surveyed stated they were fairly/very likely to consider a public-to-private deal within the next few years, while 48% of institutional shareholders expect to encourage management teams to seek private equity funding for a public-to-private deal.

The survey included smaller quoted companies with a market cap of up to £250m.

The Mother of All Ponzi Schemes

In a normal year a $50 billion Ponzi scheme would be the biggest story on Wall Street…well unfortunately this isn’t a normal year. The con job pulled off by Bernard L. Madoff, former chairman of NASDAQ, is unprecedented in scope and will have undoubted reprecussions for the SEC and regulatory bodies across the world.  My hope is that any legislation passed will not be too rash in it’s thought process.  Madoff pulled (right now allegedly) the wool over the eyes of some of the smartest investors in the world.  I’m sure the next several months will shed much light on what really happened (right now there are simply too many scraps of info, some contradictory, to paint a clear picture).  What’s truly incredible is that this will simply be a byline in the financial story of 2008.  What a year it’s been!

As background, a Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns to investors out of the money paid in by subsequent investors, rather than from the profit from any real business (I’ll refrain from making any comparisons to Social Security systems).  It’s a form of a pyramid scheme.  It’s named after the Italian Charles Ponzi who orchestrated his now notorious scam back in 1920.

Here’s a video of the man of the nefarious moment.  Around the 5:20 mark the irony starts to drip:

Sovereign Wealth Funds = Sovereign Loss Funds…For Now.

Here’s an excellent post from Brad Sester’s blog “Follow the Money” from the Council on Foreign Relations site. Brad models out how rough the year’s been for Sovereign Wealth Funds. The article and subsequent comments are well worth reading!

David de Weese Talking About Current Secondaries Market

Also from BusinessWeek, here’s David de Weese of Paul Capital discussing the current, record breaking environment for secondaries investing (brings up a good point that Secondaries Funds can be selective due to simple limitations of current availability of dry powder). He’s positive on the middle and lower middle-market, and skeptical on deals involving retail as he feels the downturn will be longer than anticipated.

• BusinessWeek interview Video with David de Weese

Dominique Senequier on the Hard Times Facing Private Equity

Here’s a video from BusinessWeek featuring the first lady of European Private Equity, Dominique Senequier, CEO of AXA Private Equity discussing the current difficult conditions facing the industry. She offers good insight into the cyclicality of the business (including the tendency for weaker firms to drift), as well as the good prospects for 2009 and 2010 vintages in secondaries.

• BusinessWeek interview with Dominique Senequier