Some Literature Review Our first group of papers is

Some analysis had already attempted to understand the impact of Private equity investments on
market valuation of companies, after and before the exit.
The contribution of this paper is to link Private equity investments made in Europe) to direct
growth and try to evaluate its efficiency relatively to other investments. Because time horizons of
Private Equity investments are usually from 5 to 10 years, such papers could help to forecast
development of activities in the target areas in Europe .


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Literature Review

Our first group of papers is composed of three different research. In those papers, we
get to learn more about the different drivers of successful private equity funds.

In the paper “Corporate Governance and Value Creation:Evidence from Private Equity” written
by Viral V. Acharya, Oliver F. Gottschalg, Moritz Hahn and Conor Kehoe, the main research
question concerns the consequences of financial leverage, luck or sector-picking on the returns
to private equity investments. The paper also talks about the effects of ownership on the
performance of the “portfolio companies relative to that of quoted peers”. Finally, the last
research question answered by the paper tries to relate the background and experience of PE
houses to wealth creation.

The sample of data used in this paper is based on 395 deals closed by 37 large Private Equity
funds in Western Europe between 1991 and 2007. It is based on two datasets, one collected
from McKinsey, a consulting firm with large PE funds, and one from LP, one of the biggest
investor in PE funds.

The measurement and variables used for the performance are mostly the IRR and the EBITDA,
but also the debt to equity ratio. Each of them are tested with a student test from a 1% to 10%
significance level.

In the paper, “Private Equity Performance: Returns, Persistence, and Capital Flows” written by
Steven N. Kaplan and Antoinette Schoarthe, the main research question is about which factors
imply returns on private equity funds such as size, cycles, experience, and management.

The observed time period covers the years 1980-2001. For this paper, the authors succeeded in
gathering a sample composed of 746 equity funds that satisfied certain criteria. The fund have to
be officially liquidated or their returns have to be unchanged for at least the six last observed
quarters. Funds with less than 5 million dollars committed are also excluded from this study. As
such, the authors ensured that their study is only based on relevant funds and that computed
performance measures are almost entirely based on cash flows to limited partners.

To evaluate fund’s performance, results are always displayed for VC, buyout, and total funds.
Results are also displayed with an equal weight and a size weight applied to the funds.
Throughout the study, different variables are used such as IRR, PME (Public Market
Equivalent), TVPI (Total value to Paid-in-Capital).

In the paper, “The European Venture Capital and Private Equity country attractiveness indices”
written by Alexander Peter Groh, Heinrich von Liechtenstein and Karsten Lieser, the main
research question is on the differences of expected revenues between Venture Capital and
Buyout funds.


To answer this question, the built sample is composed of 238 funds raised between 1993 and
2006. Throughout the study, six key drivers are analysed. Economic activity, depth of capital
market, taxations, investor protection and corporate governance, human and social
environment, entrepreneurial culture and opportunities.

Following the analysis of those three papers, we can find a common main research question
that regroup their findings: “what is the best possible structure for private equity funds in order to
maximise returns?”. Thus, following the results of those paper, we can conclude on which kind
of private equity funds we must look for to suppose a positive impact on economic growth.

First, we can see that countries can impact the returns of private equity. Regions that implement
an economic environment where investor protection and corporate governance, and depth of
capital and markets is a priority have a larger chance to attract and develop successful private
equity funds. Thus, we can establish a list of favourable destination for PE funds composed of
the United Kingdom, followed by countries such as Ireland, Denmark, Sweden, and Norway.
However, eastern countries and most western countries like France and Italy inside the
European Union have little to now attractiveness for those funds.

Then, we can identify a special structure for private equity funds to maximise returns. In facts,
we learn that funds that beneficiate from a good past performance and that dispose of a skilled
GP are the ones more likely to raise investments and see them through to create growth.
However, we observe that that size relation to performance is concave so private equity funds
should not seek growth as a priority to perform. Finally, we discover that funds raised in
booming times are less likely to succeed as they are less likely to raise follow-on funds. Last,
corporate governance inside private equity funds has one of the most relevant positive impact
on PE transactions as it improves abnormal performances in the form of increasing EBITDA
margins and multiples relative to the quoted sector.

In other words, private equity can be a component of gross if it is structured as mid to big funds
with great corporate governance directed by experienced GP’s and if investments are not made
during a booming time.