ADEC 793001 – FUNDAMENTALS OF PRIVATE EQUITY (3 Credits)Woods College of Advancing StudiesSpring 2018 Semester, January 16 - May 16, 2018Class Time: Mondays 6:30-9:00pmInstructor Name: Gul Yanmaz-KarsligilBC E-mail: [email protected] Number: 617-564-0714Office: St. Mary’s Hall SouthOffice Hours: By appointmentBoston College Mission StatementStrengthened by more than a century and a half of dedication to academic excellence, Boston College commits itself tothe highest standards of teaching and research in undergraduate, graduate and professional programs and to the pursuitof a just society through its own accomplishments, the work of its faculty and staff, and the achievements of its graduates.It seeks both to advance its place among the nation's finest universities and to bring to the company of its distinguishedpeers and to contemporary society the richness of the Catholic intellectual ideal of a mutually illuminating relationshipbetween religious faith and free intellectual inquiry.Boston College draws inspiration for its academic societal mission from its distinctive religious tradition. As a Catholicand Jesuit university, it is rooted in a world view that encounters God in all creation and through all human activity,especially in the search for truth in every discipline, in the desire to learn, and in the call to live justly together. In thisspirit, the University regards the contribution of different religious traditions and value systems as essential to thefullness of its intellectual life and to the continuous development of its distinctive intellectual heritage.Course DescriptionCourse restricted to WCAS Students. This course is for students who wish to gain a high-level understanding of the privateequity ecosystem. Private equity is no longer niche, but a large and global asset class with trillions of dollars undermanagement that touches many aspects of people’s daily lives all over the world. There are now thousands of privateequity firms globally, and the industry has evolved to the point where different players offer distinct investmentstrategies and execution styles. Topics will include LBOs, venture capital, structures, economics, due diligence, portfolioconstruction, performance measurement, impact on society, agency issues, and ethical considerations. Through classdiscussion, guest lectures, and case studies, students will develop an understanding and appreciation for this uniqueasset class that is not well understood by many.PrerequisitesStudents are expected to have taken corporate finance and accounting classes.Textbooks & Readings (Required):1. Coursepack2. Ramsinghani, Mahendra, The Business of Venture Capital, John Wiley & Sons (New York, NY, 2014)Textbooks & Readings (Recommended): I expect you to regularly read at least one business periodical such as TheWall Street Journal, Financial Times, Forbes, Fortune or Barron’s.
CanvasCanvas is the Learning Management System (LMS) at Boston College, designed to help faculty and students share ideas,collaborate on assignments, discuss course readings and materials, submit assignments, and much more - all online. Asa Boston College student, you should familiarize yourself with this important tool. For more information and trainingresources for using Canvas, click here. In the case of any technical difficulties or concerns, pleasecontact [email protected] or 617-552-HELP (4357) for immediate assistance.NOTE: Canvas requires particular computer specifications and wifi access. It is important that you plan accordingly,particularly for courses that have online components.Course Objectives1. Students will understand the private equity ecosystem generally2. Students will build foundational knowledge of private equity (terminology, classifications, methods, trends) andessential concepts3. Students will demonstrate ethical understanding pertaining to private equity as demonstrated by case studiesand examples4. Students will develop specific skills, competencies, and points of view needed by professionals in the field ofprivate equityGradingThe final course grade will be based on:1. Mid-Term Exam – 35%There will be 1 closed book exam. If circumstances prevent you from taking the exam at the scheduled time,you should consult with me prior to the exam.2. Project Paper – 35%Preparation and presentation of an assigned case or group of readings3. Class Participation/Engagement/Preparation - 30%Very important: Attendance, engagement, participation in class discussions, and completion of readings andany homework or assignments will be the components of this part of the grade.The graduate grading system for Woods College is as follows:A (4.00), A- (3.67)B (3.33), B (3.00)B- (2.67), passing but does not count toward degreeC (2.00), passing but not for degree creditF (.00)All students can access final grades through Agora after the grading deadline each semester. Students who completecourse evaluations can access grades earlier, as they are posted.Deadlines and Late WorkLate completions will not be accepted. If there are extenuating circumstances, please discuss with me, ideally beforethe deadline.
Course AssignmentsThis course is a 3-credit graduate level course that meets for 2.5 hours per week. In addition, it is expected thatapproximately 5 hours per week of your study time will be spent on reading assignments and analyses of them. Pleasenote that some weeks will require more time and some weeks less time but the average is approximately 5 hours perweek over the semester. NOTE: Required readings for a given class session (see below) are meant to be read andanalyzed ahead of that session. Be prepared to discuss the readings in class.Session DateJan 221Topic:Introduction to Private Equity OverviewNomenclatureSub-asset classesSize of market (by fundraising, invested, geography, etc.)Required Readings:1. “Long-term investing to build stronger & more competitive companies” by AFLG InvestmentsPrivate Equity2. “Private Equity: A Brief Overview, an introduction to the fundamentals of an expanding, globalindustry” by David Snow, Executive Editor, PEI Media3. Lerner, Josh Hardymon, Felda, Leamon, Ann, Venture Capital & Private Equity, John Wiley &Sons (New York, NY, 2012), Chapter 14. Cendrowski, Harry, Martin, James P., Petro, Louis W., and Wadecki, Adam A, Private Equity,History, Governance, and Operations, John Wiley & Sons (New York, NY, 2012), Chapter 25. Ramsinghani, Mahendra, The Business of Venture Capital, John Wiley & Sons (New York, NY,2014, Chapter 12Jan 29Why and how does an institution invest in Private Equity? ReturnsRiskLiquidityStructuresMain playersPortfolio constructionRequired Readings:1. Ramsinghani, Mahendra, The Business of Venture Capital, John Wiley & Sons (New York, NY,2014, Chapters 4 & 82. “Private Equity Performance: What Do We Know?” Robert S. Harris, Tim Jenkinson, andSteven N. Kaplan NBER Working Paper No. 17874 February 20123Feb 5Economic and Social Impact of Private EquityRequired Readings:1. “Private Equity, Jobs, and Productivity,” Steven J. Davis, John C. Haltiwanger, Kyle Handley,Ron S. Jarmin, Josh Lerner, and Javier Miranda, NBER Working Paper No. 19458 Sept 20132. “Private Equity and Industry Performance,” Shai Bernstein, Josh Lerner, Morten Sørensen, andPer Strömberg, NBER Working Paper No. 15632 January 20103. “Private Equity and Financial Fragility during the Crisis,” Shai Bernstein, Josh Lerner, andFilippo Mezzanotti, NBER Working Paper No. 23626 July 2017
4Feb 12Fundraising, Due Diligence, Key Terms FundraisingOverview of due diligenceOverview of typical fund documents and key termsOverview of securities used in PERequired Readings:1. “Note on Private Equity Fundraising,” Josh Lerner, 2011, HBS # 2010422. Ramsinghani, Mahendra, The Business of Venture Capital, John Wiley & Sons (New York, NY,2014, Chapters 12, 13 & 143. “Note on Private Equity Securities,” G. Felda Hardymon, Josh Lerner, 2001, HBS #2000274. “Note on Private Equity Deal Structures,” Tuck School of Business at Dartmouth, 2005, Case #5-00065Feb 19Economics of Private Equity Incentive structuresAlignment of InterestsRequired Readings:1. “Pay Now or Pay Later?: The Economics within the Private Equity Partnership,” VictoriaIvashina and Josh Lerner, NBER Working Paper No. 22660 September 20162. Ramsinghani, Mahendra, The Business of Venture Capital, John Wiley & Sons (New York, NY,2014, Chapter 133. Case: “Acme Investment Trust: January 2001,” Josh Lerner, 2002, HBS # 2020556Feb 26Leveraged Buyoutsa.b.c.d.SourcingDue diligenceDeal structures and documentsPost-closing value-addRequired Readings:1. Cendrowski, Harry, Martin, James P., Petro, Louis W., and Wadecki, Adam A, Private Equity,History, Governance, and Operations, John Wiley & Sons (New York, NY, 2012), Chapters 9 &122. “Leveraged Buyouts and Private Equity,” Steven N. Kaplan and Per Strömberg, NBER WorkingPaper No. 14207 July 20083. “What Do Private Equity Firms Say They Do?” Paul Gompers, Steven N. Kaplan, and VladimirMukharlyamov, NBER Working Paper No. 21133 April 2015Mar 5Spring Break - No Class
7Mar 12Venture Capital SourcingDue diligenceDeal structures and documentsPost-closing value-addRequired Readings:1. Ramsinghani, Mahendra, The Business of Venture Capital, John Wiley & Sons (New York, NY,2014, Chapters 15, 16, 17, 18 & 192. Case: “Term Sheet Negotiations for Trendsetter, Inc.,” Walter Kuemmerle, William J.Coughlin, 2004, HBS #8013588Mar 19Mid-term Exam9Mar 26Exits in Private Equity Trade saleIPOsOtherRequired Readings:1. Ramsinghani, Mahendra, The Business of Venture Capital, John Wiley & Sons (New York, NY,2014, Chapters 24, 25 & 262. “Note on the Initial Public Offering Process,” Josh Lerner, 2007, HBS #2000183. “Private Equity Exits,” Paul A. Gompers, Timothy Dore, 2014, HBS #21311210Apr 2Fund Due Diligence – the 4 P’s ProductPerformancePeopleProcess and governanceRed flags in diligenceRequired Readings:1. Ramsinghani, Mahendra, The Business of Venture Capital, John Wiley & Sons (New York, NY,2014, Chapters 5, 7, 8, 9 & 1011Apr 9Fund Legal Terms and Other Due Diligence Legal structure and termsSignaling problems, power dynamics, conflicts of interestCompliance/risk managementESG (Environmental/social/governance) policiesValuation and reporting policyRequired Readings:1. “Note on Private Equity Partnership Agreements,” Josh Lerner, 2011, HBS #2940842. Ramsinghani, Mahendra, The Business of Venture Capital, John Wiley & Sons (New York, NY,2014, Chapter 13Apr 16Patriots’ Day Holiday – No Class
12Apr 23Valuation Practices & PoliciesRequired Readings:1. “Note on Valuation in Private Equity Settings,” Josh Lerner, John Willinge, 2011, HBS #2970502. “Note on Valuation in Private Equity Settings, Spreadsheet Supplement,” Josh Lerner, JohnWillinge, 2011, HBS #: XLS135-XLS-ENG3. “Private Equity Valuation in Emerging Markets,” Paul A. Gompers, Victoria Ivashina, TimothyDore, 2017, HBS # 21304313Apr 30Monitoring & Performance Measurement in Private Equity Evaluating performance using traditional and modern methods (IRR, PME, etc.)Industry standards, benchmarks, and shortcomingsAssessing value creation by GPs (traditional value bridge vs newer methods)Persistence of performanceRequired Readings:1. “Do Private Equity Funds Manipulate Reported Returns?” Gregory W. Brown, Oleg R. Gredil,and Steven N. Kaplan NBER Working Paper No. 22493 August 20162. “Financial Intermediation in Private Equity: How Well Do Funds of Funds Perform?” Robert S.Harris, Tim Jenkinson, Steven N. Kaplan, and Ruediger Stucke NBER Working Paper No. 23428May 20173. “Limited Partner Performance and the Maturing of the Private Equity Industry,” Berk A.Sensoy, Yingdi Wang, and Michael S. Weisbach NBER Working Paper No. 18793 February201314May 7Private Equity in International and Emerging Markets SizeTrendsDifferences with U.S.Required Readings:1. “The Internationalization of Venture Capital and Private Equity,” Joshua Aizenman, JakeKendall, NBER Working Paper No. 14344 September 20082. “A Note on Private Equity in Europe,” Josh Lerner; Ann Leamon, 2011, HBS #8111033. “Note on Private Equity in Developing Countries,” Josh Lerner, Ann Leamon, Abishai Vase,2015, HBS #81110215May 14Careers in Private EquityRequired Reading:1. Ramsinghani, Mahendra, The Business of Venture Capital, John Wiley & Sons (New York, NY,2014, Chapter 2 & 32. Case: “Venita Fields: What Private Equity Professionals Really Do,” Derrick Collins; Ed Finkel;Scott T. Whitaker, 2010, Kellogg School of Management #: KEL500-PDF-ENG3. Case: “Tad O’Malley: December 2004,” G. Felda Hardymon; Josh Lerner; Ann Leamon; SeanKlimczak, 2007, HBS #806024
Written WorkWoods College students are expected to prepare professional, polished written work. Written materials must be typedand submitted in the format required by your instructor. Strive for a thorough yet concise style. Cite literatureappropriately, using APA, MLA or CLA style per your instructor’s requirements. Develop your thoughts fully, clearly,logically and specifically. Proofread all materials to ensure the use of proper grammar, punctuation and spelling. Forwriting support, please contact the Connors Family Learning Center.AttendanceAttending and actively participating in class is an important component of learning. I expect you to attend all classsessions. When circumstances prevent you from attending class, you are responsible for contacting me before the classmeets. Students who miss class are still expected to complete all assignments and meet all deadlines. If you miss class,you cannot make up participation points associated with that class. Makeup work may be assigned at the discretion ofthe instructor. If circumstances necessitate excessive absence from class, the student should consider withdrawingfrom the class. As noted in the Grading section, participation counts for 30% of the final grade.Consistent with BC’s commitment to creating a learning environment that is r