The Future of Finance E-Book

Dan Schwartz

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Finance Editions
• Sprache: Englisch

Seitenzahl: 420

Veröffentlichungsjahr: 2011

Beschreibung

Dan Schwartz has done a masterful job of synthesizing the thoughts of some of the best minds in the private equity business along with his own to create a superb discussion of the industry, past, present, and most importantly where it is going. This is a must-read for anyone in the private equity world and for those considering the field. Leonard Harlan Chairman, Executive Committee, Castle Harlan Dan Schwartz was a first-hand witness to the birth of private equity in Asia and has chronicled its explosive growth over the past two decades. In The Future of Finance he uses an insider's perspective to full effect, pulling together the views of many practitioners to illuminate both the roots of the 2008 global crisis and private equity's potential role in rebuilding our financial system. Schwartz' fast-paced, conversational style makes for a welcome contrast to dry economic analysis--well worth reading for both business leaders and students of finance. Dan Carroll Managing Partner, TPG Dan Schwartz's The Future of Finance offers an insightful and compelling window into the world of private equity and venture capital. Schwartz has leveraged his more than 20 years of industry experience to produce a well researched and nuanced work that will prove invaluable to anyone interested in these fields. Joe Bae Managing Partner, Kohlberg Kravis Roberts & Co. Asia For anyone concerned about the future economic impact of global innovation, job creation, and finance, Dan Schwartz's comprehensive new treatise is a must-read. Replete with in-depth perspectives of dozens of the most senior global venture capital and private equity leaders and numerous case study examples, this gem artfully explains the dramatic changes happening in these vital industries and how government leaders, policy makers, entrepreneurs and investors must adapt for continuing success in the second decade of the 21st century. Dixon R. Doll Cofounder and General Partner, DCM Chairman, U.S. National Venture Capital Assoc. (2008-09) From cottage industry to multi-billion asset class, Asian private equity has transformed the region's financial and corporate landscape in two short decades. Dan Schwartz was present at the beginning of this fascinating era as iconic spokesman and entrepreneurial founder of AVCJ. His contribution as chief convener to the industry helped shape an asset class. The Future of Finance is forward-looking while drawing upon the rich past of an industry's development amid volatile cycles, financial crises, pandemics, capital excess, capital drought and Darwinian struggles. Many of the prime movers, who paved the way to the future, have shared privileged views with Dan over the years and now on these insightful pages. Philip Bilden Managing Director, HarbourVest Partners (Asia) Dan Schwartz's extensive and experienced network has enabled him to tap the key issues and insights of today's leading private equity and venture capital practitioners around the world. This enlivens Dan's stroll through Europe, North America and Asia as he examines the development of these private capital markets...and these insights shape the prism through which he views a future for private equity in the coming decades. Bill Ferris Executive Chairman, Champ Private Equity Dan Schwartz is the person best placed to write about the history of the private equity industry in Asia--he was there right from the beginning. In nearly two decades, he has been a keen observer of the industry's developments and market trends. He was the cheerleader when the industry was down and he has been a friend to most of the leading practitioners, a position that provides him with unique insights into the actual workings of the industry as described in the book. The "New Corporate Theory" introduced in the last section of the book is an interesting thesis. If it comes to fruition, it will transform the shareholder-driven corporate governance model as we know it today. Tang Kok Yew Chairman and Managing Partner, Affinity Equity Partners (HK)

Leseprobe

Contents

Cover

Title Page

Copyright

Dedication

Foreword

Acknowledgments

Chapter 1: Tomorrow Will Be Different than Today

A Changing World

Enter Private Equity and Venture Capital

Chapter 2: Private Equity and Venture Capital: A Primer

The Structure of the Industry

The Game

A Brief History

Life After the Liquidity Bubble: Private Equity

Life After the Internet Bubble: Venture Capital

What Is the Purpose of Private Equity?

Chapter 3: 2009: A Very Challenging Year

A Global Economy in 2009

A Global Stage in 2009

The Meltdown: A 25-Year Story

What's Different Now

In Closing

Chapter 4: 2010: Private Equity and Venture League Tables and Niches

The 2010 Economy (Briefly)

The Private Equity and Venture Capital Worlds Today

Limited Partners

Debt Providers

Chapter 5: Private Equity and Venture Capital in Markets Around the World

United States

China

Japan

Korea

Hong Kong

Singapore

India

Middle East

CHIME

Australia

European Union

Russia

Chapter 6: Industry Issues

United States

State Political Issues

Europe and the United Kingdom

Tax Issues: The Carry—Capital Gains or Ordinary Income?

No Credit

FASB 157: Mark-to-Market

Dry Powder and the Bid-Ask Spread

Managing Failures

Fundraising in the Next Decade

Capital Calls

The Public Face of Private Equity

Succession

Adapting to Globalization

What Business Are We In?

Fund Structure: Is There a Better Way?

Going Public

Other European Industry Issues

Asian Industry Issues

Middle East Issues

Limited Partners

Chapter 7: The Next Decade: A Future Scape

Forward to the Future

The Private Equity Firm of the Future

Venture Capital Firm of the Future

Private Equity: Where Are the Opportunities?

Venture Capital: Where Are the Opportunities?

Chapter 8: Toward a New “Corporate Norm”

A False Dichotomy?

The Industry Model

A New Theory

How Does This Translate to Larger Corporate Theory?

The New Theory at Work

Why Have Some Succeeded, Others Failed?

The New Model and Other Market Factors

Shaping the Global Economy

Is This the Beginning or the End?

Notes

The Class of 2010 (People Interviewed in the Book)

Index

Copyright © John Wiley & Sons (Asia) Pte. Ltd.

Published in 2010 by John Wiley & Sons (Asia) Pte. Ltd.

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Library of Congress Cataloging-in-Publication Data

ISBN 978-0-470-82511-2

For my daughters, Allison and Dana, and to Karen,who took care of them while I was away.

Foreword

From embryonic starts in the United States in the 1960s and 1970s, the separate, but inextricably linked investment disciplines of venture capital and private equity grew, by the early part of the twenty-first century, into a significant, global (and at times controversial) industry managing trillions of dollars and employing tens of millions of workers.

The good times for these firms—and their ever-growing set of institutional and individual investors—seemed likely to extend for many years, if not decades, into the future.

And then came the Great Recession of 2008–2009, with its devastating effects on so many of the largest, most vibrant economies in the world.

Although the venture capital and private equity industries were generally not blamed for causing the Great Recession, they were nonetheless severely and adversely impacted by it—to the point that many serious observers openly wondered whether these once seemingly infallible investment forces might become a relic of the past.

Their magic was gone. Their investor allure had waned. Their images had been impaired.

How had this happened—and so quickly? Could venture capital and private equity recover, perhaps by reinventing themselves as they had following previous, though far less severe, economic downturns? And what if they did not? Who in the future might provide entrepreneurial capital for innovation or enhanced corporate productivity?

The answers to these questions and related ones are still unknown, for the Great Recession is only beginning to recede, and its full, and perhaps permanent impact on the world of investing—especially in the higher-risk but higher-return areas of venture capital and private equity—is difficult to accurately predict.

To be sure, many of us who have worked through prior ups and downs in the investment cycle believe that venture capital and private equity will indeed return, and in many ways stronger than ever—chastened by earlier excesses and focused anew on helping entrepreneurs, managers, and investors achieve their goals. But that is admittedly a biased perspective.

To those who have not lived in the trenches of venture capital and private equity, but would nonetheless like to have answers to the key questions about the future of venture capital and private equity, a less biased—but fully informed—perspective might be in order. And that is precisely what Dan Schwartz has provided in The Future of Finance, a book that, because of the author's clear objectivity and unquestioned knowledge of the subject, is certain to be widely read and thoroughly commented on.

One of the many problems that venture capital, to some extent, and private equity, to a greater extent, have faced in recent years is the general public's general lack of understanding of these disciplines: how they work, why they have grown, what they achieve, and who they impact. Regrettably few works by well-informed writers have appeared in recent years to provide answers to these basic questions. And the most recent turmoil in the venture capital and private equity worlds has no doubt exacerbated this general lack of understanding.

Dan Schwartz has therefore provided a real public service by not only carefully researching and skillfully writing this book, but by doing so in a way that can truly inform the layperson, as well as investment professionals, about what has happened, is happening, and is likely to happen in the increasingly important—but rapidly changing—worlds of venture capital and private equity.

And the author has done this while holding down a day job of running a business he headed for more than 15 years—the Asian Venture Capital Journal, which has grown from its modest beginnings to a position of enormous influence in the burgeoning Asia venture and private equity worlds.

That perch has put Dan Schwartz into frequent contact with the leading professionals in both the Asian and the global venture capital and private equity industries. This is made abundantly clear in The Future of Finance, for the author has been able to obtain many frank (and invaluable) observations and insights from those professionals.

Stated simply, a nonprofessional interested in learning about the seeming mysteries—and likely future—of venture capital and private equity would be hard pressed to find a more useful, up-to-date primer than The Future of Finance. But, to the author's credit, he has also written a book that provides a great deal of information likely to be unknown to even the most seasoned of venture capital and private equity professionals. And they are therefore likely to benefit as well from reading The Future of Finance. I already know one who has so benefited.

David Rubenstein

Cofounder and Managing Director

The Carlyle Group

Acknowledgments

As anyone who has done so will tell you, writing a book is no small feat. It has occupied the greater part of my attention for the past year, and I have enjoyed the process. A number of people who assisted with the project have made it easier, and I wish to thank them profusely.

First, I would like to thank those who agreed to share their thoughts for the book. Not only did they spend time speaking with me, but they checked quotes, found photos, and signed forms. Despite busy days and hectic travel schedules, their time on the phone or in person discussing and describing the industry was most appreciated. You were great. I hope the book meets your expectations.

Most of those with whom I spoke or met had personal assistants, secretaries, or significant others who made it all happen. Your names do not appear in the book, but you know who you are. And so do I. Thank you!

Next, I would like to thank David Rubenstein for writing the Foreword. He is a busy man. His taking the time to write a substantive introduction is much appreciated. Those who know David and are familiar with his reputation as a hard-working and insightful man would, of course, expect no less.

I would like to thank my associate at the Asian Venture Capital Journal, Harmony Heung, for her assistance in putting this book together as well as everything else she has taken care of for me in Hong Kong over the past 18 years. You have been invaluable. Many others at AVCJ have also helped, including Allen Lee, Anil Nathani, Paul Mackintosh, Ying Jiang, Amelie Poon, and Helen Lee. I would also like to thank Jonathon Whiteley and his Incisive Media colleagues. They purchased the company in 2006. Good luck, and don't forget us in Asia!

I wish to extend my appreciation to the many others for your indulgence over the past year as I lugged my laptop around the world to talk, gather information, and to write. That includes my family, girlfriend(s), and friends from all over who graciously allowed me the time and space to think and write.

Finally, my sincere appreciation to Nick Wallwork and the crew at John Wiley & Sons (Asia) in Singapore, who have agreed to publish this book. May it be a winner!

The book contains a lot of information and facts. I have done my best to ensure that they are correct and timely. Mistakes will happen, though, and for these, please accept my sincere apologies. They are my own.

Dan Schwartz

Hong Kong

January 2010

Chapter 1

Tomorrow Will Be Different than Today

Private equity is a people business. Some people you love to hate. But most are smart, work hard, and deliver the goods. They live in New York, Hong Kong, and London. They complete transactions ranging from large buyouts of public companies to restructuring failed banks to funding dorm-room start-ups. They run on ambition, greed, talent, and the challenge of finding new ways to finance and run a company.

Over the past 17 years, I have managed the Asian Venture Capital Journal in Hong Kong. In 1992 we started with one monthly, one conference, and one guidebook. AVCJ now boasts a weekly and two other magazines, organizes 11 conferences on four continents, and offers online directories, databases, and consulting services. This growth took place in the same period that saw the print magazine industry implode, as ad revenues dried up and titles folded.

It was a period in which the Internet was born and exploded onto the world scene, China and India grew from remote destinations to pillars of the global economy, and an expanding debt bubble in the West finally burst, leaving the world looking for answers. It was a time in which private equity and venture capital grew out of offices on Park Avenue and Sand Hill Road to become a global phenomenon.

AVCJ was there. We watched it from the front porch and inevitably became part of it. We survived the 1997 Asian financial crisis and rode the Internet boom and bust. We watched as the trickle of U.S. and European firms setting up shop in Asia became a torrent. We saw the private equity world explode in size with come-and-get-it debt, and then freeze-frame when the lending markets imploded. And we kept asking for more, as a nonstop stream of crises played out in front of us. I vividly recall peering over the chasm of SARS and thinking it was all over, as people and businesses bolted out of Hong Kong in April 2003. Some never came back.

This story is about what happened then and what will happen in the future: private equity and venture capital's people, their firms, and their customers—billion-dollar pension plans, endowments, and sovereign wealth funds. It is also a story about the stage on which they play: the world's economies—chiefly the United States, Europe, and Asia. You'll see where the industry is today and where it will be tomorrow, and you'll look into the possibilities that lie ahead. The story is about the many challenges the industry faces: the plunge in distributions, looming government regulation, and the issues of succession and business models, among others. The story is also about the opportunities—from overleveraged companies to what's happening in alternative energy, digital media, and new markets. The words are mostly those of industry leaders: a global story about an important industry.