The Asset Update

Top 10 reasons why this time it's different

18 Dec 2009 by The Asset

 

 
Tang Kok Yew, chairman and managing partner of Affinity Equity Partners, shares with us his annual year-end Top 10 list:
 
10. For the first time in 10 years, it is better to be a PE Fund with 10-year money than a hedge fund with quarterly redemptions.
 
9. This time, GPs and LPs are running to their lawyers to ask : “How does this “No-fault termination” clause work?”
 
8.  GPs now understand why due diligence should not be done in less than two weeks and encompass only one management meeting.
 
7.  This time, GPs have chutzpah! They dare to tell their LPs : "This fund will never pay out a carry. We do not want to lose such a talented team. Therefore, Mr LP, it is in your interest to amend the waterfall distribution structure to start paying carry when the cash return reaches 0.5x cost."
 
6.  This time, LPs have chutzpah! They dare to publish a report with 74 recommendations on how fund terms and conditions should be structured.
 
5.  This time, sellers of businesses have chutzpah! 10 years ago, at a time of financial distress, they sold businesses for 4x Ebitda. At this time of great financial distress, they won’t sell businesses of less than 8x Ebitda.
 
4.  PE firms discover that loan covenants are real.
 
3. A new standard has emerged in Asia for valuing PE portfolios : It’s called “Higher of Cost or DCF”.
 
2. Last time, we invested 25% as equity and borrowed 75%.  This time, we borrow 25% and invest 75% as equity.
 
1. Last time : Capitalism saved China. This time : China saved Capitalism. 


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