Adam Street Partners A pioneer Investors Aprroach to Constructing Private Equity Portfolios Case Solution

Case Solution

Adam Street exhibited an advantage of benefits vehicle in 1979. Through this vehicle, minimal budgetary expert could in like manner get to and place assets into private worth firms. Adam Street formed laborers' pay pack in a way that agents had vested an energy for the accomplishment of the association. Along these lines, the course of action of interest issue was in like manner tended to.

Excel Calculations

·         Gross IRR

·         Limited Partner ( Principal + Preferred return)

·         Total catch up

·         GP's share

·         LP's Share

·         Remaining Profit

·         GP's carried interest

·         LP's Share of profit

·         Funds allocated to each investment

·         Cash Flow(year 1)

·         Cash Flow(year 2)

·         Cash Flow(year 3)

·         LP's Total share of return ( CF year 4)

·         Net IRR

Questions Covered

1.       What are the most pertinent issues in due diligence in a buyout transaction? In your opinion, which is the single most important factor in a due diligence that is often overlooked, and can lead to eventual failure, explain?

2.       Discuss advantages and disadvantages of investing in private equity via a fund of funds vehicle or directly. How does Adams Street mitigate some of the disadvantages?

3.       Propose the eight criteria used by the Portfolio Construction Committee, chaired by Hanneke Smits, to assess the investment potential of various geographies (see Exhibit VI). Why do you think the U.S. Fund receives such a large weight (see Exhibit VII)?

4.       AnaCap Financial Partners: Due Diligence Evaluation. What criteria should Tim Kelly and Piau-Voon Wang consider in a scorecard used to evaluate, assess and select a Fund Manager such as AnaCap? Explain how these criteria would help Tim identify risks within AnaCap and rank the importance of these criteria in advance of his presentation to the investment committee at Adams Street.

5.       AnaCap Financial Partners: Fund Distribution Waterfall a. Use Exhibit IX to calculate the expected Gross and Net IRRs (to an LP investing in AnaCap). Assume the following: • The investable capital is computed after setting aside a management fee reserve for the first 4 years. • The investable capital is deployed evenly over the first 4 years. • Each investment is held for exactly 4 years before being sold and provides a gross money multiple return of 3x. b. Using the assumptions of 4.a, identify the Gross IRR that must be achieved by AnaCap such that an LP investing €50 mil. breaks even. Consider two scenarios: i. The LP invests directly in AnaCap ii. The LP invests in Adams Street Partners, which in turn invests in AnaCap. Assume the following: • Adams Street’s management fee is 65bps against committed capital and the carried interest rate is 10%. There is no hurdle rate. • The investable capital is computed after setting aside a management fee reserve for the first 4 years.