1.
Multi-family office
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A multi-family office is usually an independent organization that supports multiple families to manage their entire wealth. Some multi-family offices are known to offer personal services such as managing household staff. Because the customized services offered by an office can be costly. A multi-family office is an enterprise established to meet the investment, estate planning and, in some cases. In the United States, many MFOs are registered investment advisors, some are trust companies, the family office concept has its roots back in the 6th century. Then a majordomo was a person who would speak, make arrangements, or take charge for the affairs of the royal family, later in the 6th century, the upper nobility started to use these services of the majordomo as well. Hence, the concept of administratorship was invented and has prevailed until today, the modern concept and understanding of family offices was developed in the 19th century. In 1838, the family of J. P. Morgan founded the House of Morgan, which managed the assets and in 1882, the Rockefellers founded their family office. Many family offices have started their business as so called single family offices, instead of covering the entire operative costs, many owners of single family offices decided to offer its services to other families as well. This concept is called multi-family office or multi-client family office, only a few multi-family offices have founded their business independently, without a large family backing it. The difficulty in attracting and retaining such talented employees became more difficult and these changes, combined with the consolidation of the financial services industry, significantly diminished the role of the bank trust departments that traditionally served the wealthy families. These trends resulted in an increased need and cost for family office-type services, to defray such costs many families opened their family offices to non-family members, resulting in multi-family offices. MFOs tend to have the characteristics, Independence, MFOs typically do not sell. MFOs usually follow a “service delivery model” holding themselves out as a provider of advice that places the interests of their clients first. Breadth and Integration of Services, MFOs provide an array of services. MFOs will have information about their clients investments, tax situation, estate plan. With this information the MFO can assist in structuring and administering the clients’ financial universe in an optimal fashion, professionals with Diverse Skills and Deep Specialties, MFO professionals provide a wide array of advice and assistance to their clients. MFOs also have to be able to provide specialty knowledge on topics such as, income taxation, estate planning
2.
Trust law
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A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a settlor, who transfers property to a trustee, the trustee holds that property for the trusts beneficiaries. Trusts exist mainly in common law jurisdictions and similar systems existed since Roman times and this may be done for tax avoidance reasons or to control the property and its benefits if the settlor is absent, incapacitated, or deceased. Trusts are frequently created in wills, defining how money and property will be handled for children or other beneficiaries, the trustee is given legal title to the trust property, but is obligated to act for the good of the beneficiaries. The trustee may be compensated and have expenses reimbursed, but otherwise must turn over all profits from the trust properties, Trustees who violate this fiduciary duty are self-dealing. Courts can reverse self-dealing actions, order profits returned, and impose other sanctions, the trustee may be either an individual, a company, or a public body. There may be a trustee or multiple co-trustees. The trust is governed by the terms under which it was created, in most jurisdictions, this requires a contractual trust agreement or deed. A trust is created by a settlor, who transfers title to some or all of his or her property to a trustee, the trust is governed by the terms under which it was created. In most jurisdictions, this requires a contractual trust agreement or deed and it is possible for a single individual to assume the role of more than one of these parties, and for multiple individuals to share a single role. For example, in a living trust it is common for the grantor to be both a trustee and a beneficiary, while naming other contingent beneficiaries. Trusts have existed since Roman times and have one of the most important innovations in property law. Trust law has evolved through court rulings differently in different states, so statements in this article are generalizations, States are adapting the Uniform Trust Code to codify and harmonize their trust laws, but state-specific variations still remain. An owner placing property into trust turns over part of his or her bundle of rights to the trustee, separating the propertys legal ownership and control from its equitable ownership and benefits. This may be done for tax reasons or to control the property and its benefits if the settlor is absent, incapacitated, testamentary trusts may be created in wills, defining how money and property will be handled for children or other beneficiaries. While the trustee is given legal title to the trust property, in accepting the property title, the primary duties owed include the duty of loyalty, the duty of prudence, the duty of impartiality. A trustee may be held to a high standard of care in their dealings. In addition, a trustee has a duty to know, understand, the trustee may be compensated and have expenses reimbursed, but otherwise must turn over all profits from the trust properties
3.
Financial capital
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Financial capital generally refers to saved-up financial wealth, especially that used to start or maintain a business. A financial concept of capital is adopted by most entities in preparing their financial reports, under a financial concept of capital, such as invested money or invested purchasing power, capital is synonymous with the net assets or equity of the entity. Under a physical concept of capital, such as operating capability, capital is regarded as the capacity of the entity based on, for example. Financial capital maintenance can be measured in nominal monetary units or units of constant purchasing power. Framework for the Preparation and Presentation of Financial Statements, Financial capital is provided by lenders for a price, also see time value of money for a more detailed description of how financial capital may be analyzed. Furthermore, financial capital, is any medium or mechanism that represents wealth. It is, however, usually purchasing power in the form of available for the production or purchasing of goods. Capital can also be obtained by producing more than what is immediately required, Financial capital can also be in the form of purchasable items such as computers or books that can contribute directly or indirectly to obtaining various other types of capital. Shareholders may vote at AGMs and be elected as directors, debenture-holders may not vote at AGMs or be elected as directors, shareholders receive profit in the form of dividends, debenture-holders receive a fixed rate of interest. If there is no profit, the shareholder does not receive a dividend, in case of dissolution the firms debenture holders are paid first, before shareholders. Fixed capital is money firms use to purchase assets that will remain permanently in the business, nature of business Size of business Stage of development Capital invested by the owners location of that area Firms use working capital to run their business. For example, money that they use to buy stock, pay expenses, most indigenous forms of money and the modern fiat money are only a symbolic storage of value and not a real storage of value like commodity money. The ratio between debt and equity is named leverage and it has to be optimized as a high leverage can bring a higher profit but create solvency risk. This means the payments made to the shareholders are first paid to the preference shareholder, like money, financial instruments may be backed by state military fiat, credit, or commodity resources. Governments generally closely control the supply of it and usually require some reserve be held by institutions granting credit, trading between various national currency instruments is conducted on a money market. Such trading reveals differences in probability of debt collection or store of value function of that currency, when payment is deferred on any such instrument, typically an interest rate is higher than the standard interest rates paid by banks, or charged by the central bank on its money. Often such instruments are called fixed-income instruments if they have reliable payment schedules associated with the rate of interest. A variable-rate instrument, such as consumer mortgages, will reflect the standard rate for deferred payment set by the central bank prime rate
4.
Accounting
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Accounting or accountancy is the measurement, processing and communication of financial information about economic entities such as businesses and corporations. The modern field was established by the Italian mathematician Luca Pacioli in 1494, practitioners of accounting are known as accountants. The terms accounting and financial reporting are often used as synonyms, Accounting can be divided into several fields including financial accounting, management accounting, external auditing, and tax accounting. Accounting information systems are designed to support accounting functions and related activities, Accounting is facilitated by accounting organizations such as standard-setters, accounting firms and professional bodies. Financial statements are audited by accounting firms, and are prepared in accordance with generally accepted accounting principles. GAAP is set by various standard-setting organizations such as the Financial Accounting Standards Board in the United States, as of 2012, all major economies have plans to converge towards or adopt the International Financial Reporting Standards. The history of accounting is thousands of old and can be traced to ancient civilizations. By the time of the Emperor Augustus, the Roman government had access to detailed financial information, double-entry bookkeeping developed in medieval Europe, and accounting split into financial accounting and management accounting with the development of joint-stock companies. The first work on a double-entry bookkeeping system was published in Italy, both the words accounting and accountancy were in use in Great Britain by the mid-1800s, and are derived from the words accompting and accountantship used in the 18th century. In Middle English the verb to account had the form accounten, which was derived from the Old French word aconter, which is in turn related to the Vulgar Latin word computare, meaning to reckon. The base of computare is putare, which meant to prune, to purify, to correct an account, hence, to count or calculate. The word accountant is derived from the French word compter, which is derived from the Italian. Accountancy refers to the occupation or profession of an accountant, particularly in British English, Accounting has several subfields or subject areas, including financial accounting, management accounting, auditing, taxation and accounting information systems. Financial accounting focuses on the reporting of a financial information to external users of the information, such as investors. It calculates and records business transactions and prepares financial statements for the users in accordance with generally accepted accounting principles. GAAP, in turn, arises from the agreement between accounting theory and practice, and change over time to meet the needs of decision-makers. This branch of accounting is also studied as part of the exams for qualifying as an actuary. It is interesting to note that two professionals, accountants and actuaries, have created a culture of being archrivals
5.
The New York Times
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The New York Times is an American daily newspaper, founded and continuously published in New York City since September 18,1851, by The New York Times Company. The New York Times has won 119 Pulitzer Prizes, more than any other newspaper, the papers print version in 2013 had the second-largest circulation, behind The Wall Street Journal, and the largest circulation among the metropolitan newspapers in the US. The New York Times is ranked 18th in the world by circulation, following industry trends, its weekday circulation had fallen in 2009 to fewer than one million. Nicknamed The Gray Lady, The New York Times has long been regarded within the industry as a newspaper of record. The New York Times international version, formerly the International Herald Tribune, is now called the New York Times International Edition, the papers motto, All the News Thats Fit to Print, appears in the upper left-hand corner of the front page. On Sunday, The New York Times is supplemented by the Sunday Review, The New York Times Book Review, The New York Times Magazine and T, some other early investors of the company were Edwin B. Morgan and Edward B. We do not believe that everything in Society is either right or exactly wrong, —what is good we desire to preserve and improve, —what is evil, to exterminate. In 1852, the started a western division, The Times of California that arrived whenever a mail boat got to California. However, when local California newspapers came into prominence, the effort failed, the newspaper shortened its name to The New-York Times in 1857. It dropped the hyphen in the city name in the 1890s, One of the earliest public controversies it was involved with was the Mortara Affair, the subject of twenty editorials it published alone. At Newspaper Row, across from City Hall, Henry Raymond, owner and editor of The New York Times, averted the rioters with Gatling guns, in 1869, Raymond died, and George Jones took over as publisher. Tweed offered The New York Times five million dollars to not publish the story, in the 1880s, The New York Times transitioned gradually from editorially supporting Republican Party candidates to becoming more politically independent and analytical. In 1884, the paper supported Democrat Grover Cleveland in his first presidential campaign, while this move cost The New York Times readership among its more progressive and Republican readers, the paper eventually regained most of its lost ground within a few years. However, the newspaper was financially crippled by the Panic of 1893, the paper slowly acquired a reputation for even-handedness and accurate modern reporting, especially by the 1890s under the guidance of Ochs. Under Ochs guidance, continuing and expanding upon the Henry Raymond tradition, The New York Times achieved international scope, circulation, in 1910, the first air delivery of The New York Times to Philadelphia began. The New York Times first trans-Atlantic delivery by air to London occurred in 1919 by dirigible, airplane Edition was sent by plane to Chicago so it could be in the hands of Republican convention delegates by evening. In the 1940s, the extended its breadth and reach. The crossword began appearing regularly in 1942, and the section in 1946
6.
Rockefeller family
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The family is also known for its long association with and control of Chase Manhattan Bank. They are considered to be one of the most powerful families, if not the most powerful family, one of the founding members of the Rockefeller family was businessman William Rockefeller Sr. born in Granger, New York, to a Protestant family. He had six children with his first wife Eliza Davison, the most prominent of which were oil tycoons John Davison Rockefeller and William Rockefeller, Oil baron John D. Rockefeller was a devout Northern Baptist, and he supported many church-based institutions. The family was involved in numerous real estate construction projects in the U. S. during the 20th century. In Manhattan by fourteen major institutions that were based in the area, the result, in 1951, was the six-building apartment complex known as Morningside Gardens. Seniors donations led to the formation of the University of Chicago in 1889, the Central Philippine University in the Philippines and this was one instance of a long family and Rockefeller Foundation tradition of financially supporting Ivy League and other major colleges and universities over the generations—seventy-five in total. John D Jr. established International House at Berkeley, beginning with John Sr. the family has been a major force in land conservation. John Jr. and his son Laurance were particularly prominent in this area, at the event, the societys president, John Flicker, notably stated, Cumulatively, no other family in America has made the contribution to conservation that the Rockefeller family has made. Nelson, John D. III, John D. IV, Peggy Dulany, Rockefeller Foundation, the Trilateral Commission -David, Rockefeller Brothers Fund. The Bilderberg Group - David, John D. IV, the Asia Society - John D. III, John D. IV, Charles, David. The Population Council - John D. III, the Council of the Americas - David. The Group of Thirty - The Rockefeller Foundation, the World Economic Forum - David. The Peterson Institute - David, Monica, the International Executive Service Corps - David. The Institute for Pacific Relations - Junior, the League of Nations - Junior. The United Nations - Junior, John D. III, Nelson, David, Peggy Dulany, the United Nations Association - David. These include, the Commonwealth Fund, Charles E. Culpeper Foundation, Lucille P. Markey Charitable Trust, in total, it holds over 70 million pages of documents and contains the collections of forty-two scientific, cultural, educational and philanthropic organizations. Only the expurgated records of deceased family members are available to scholars and researchers. He reports that it will be years before all the papers will be open to the public
7.
Hedge fund
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It is administered by a professional investment management firm, and often structured as a limited partnership, limited liability company, or similar vehicle. The name hedge fund originated from the long and short positions that the first of these funds used to hedge market risk. Over time, the types and nature of the hedging concepts expanded, today, hedge funds engage in a diverse range of markets and strategies and employ a wide variety of financial instruments and risk management techniques. Hedge funds are available only to certain accredited investors and cannot be offered or sold to the general public. Hedge funds have existed for decades, and became increasingly popular, growing to be a substantial fraction of asset management. Hedge funds are almost always open-ended and allow additions or withdrawals by their investors, the value of an investors holding is directly related to the fund net asset value. Many hedge fund investment strategies aim to achieve a return on investment regardless of whether markets are rising or falling. Hedge fund managers often invest money of their own in the fund they manage, a hedge fund typically pays its investment manager an annual management fee, and a performance fee. Both co-investment and performance fees serve to align the interests of managers with those of the investors in the fund, some hedge funds have several billion dollars of assets under management. The word hedge, meaning a line of bushes around a field, has long used as a metaphor for the placing of limits on risk. Early hedge funds sought to hedge specific investments against general market fluctuations by shorting the market, nowadays, however, many different investment strategies are used, many of which do not hedge risk. During the US bull market of the 1920s, there were numerous private investment vehicles available to wealthy investors. The sociologist Alfred W. Jones is credited with coining the phrase hedged fund and is credited with creating the first hedge fund structure in 1949, although this has been disputed. Jones referred to his fund as being hedged, a term commonly used on Wall Street to describe the management of investment risk due to changes in the financial markets. In the 1970s, hedge funds specialized in a single strategy, many hedge funds closed during the recession of 1969–70 and the 1973–1974 stock market crash due to heavy losses. They received renewed attention in the late 1980s, during the 1990s, the number of hedge funds increased significantly, funded with wealth created during the 1990s stock market rise. The increased interest was due to the aligned-interest compensation structure and the promise of high returns. Over the next decade hedge fund strategies expanded to include, credit arbitrage, distressed debt, fixed income, quantitative, US institutional investors such as pension and endowment funds began allocating greater portions of their portfolios to hedge funds
8.
Tax avoidance
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Tax avoidance is the legal usage of the tax regime in a single territory to ones own advantage to reduce the amount of tax that is payable by means that are within the law. Tax sheltering is very similar, although unlike tax avoidance tax sheltering is not necessarily legal, Tax havens are jurisdictions which facilitate reduced taxes. While forms of tax avoidance which use tax laws in ways not intended by governments may be considered legal, many corporations and businesses which take part in the practice experience a backlash, either from their active customers or online. Since 1995, trillions of dollars have been transferred from OECD, though the specifics may vary according to jurisdiction, these rules invalidate tax avoidance which is technically legal but not for a business purpose or in violation of the spirit of the tax code. Related terms for tax avoidance include tax planning and tax sheltering, Tax evasion, on the other hand, is the general term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means. Both tax evasion and some forms of tax avoidance can be viewed as forms of tax noncompliance, a company may choose to avoid taxes by establishing their company or subsidiaries in an offshore jurisdiction. Individuals may also avoid tax by moving their tax residence to a tax haven, such as Monaco and they may also reduce their tax by moving to a country with lower tax rates. However, a number of countries tax their citizens on their worldwide income regardless of where they reside. As of 2012, only the United States and Eritrea have such a practice, whilst Finland, France, Hungary, Italy, in cases such as the US, taxation cannot be avoided by simply transferring assets or moving abroad. U. S. citizens therefore cannot avoid U. S. taxes simply by emigrating from the U. S, the 2012 limit on the amount that can be excluded is US$95,100. Most countries impose taxes on income earned or gains realized within that country regardless of the country of residence of the person or firm, to avoid tax, it is usually not enough to simply move ones assets to a tax haven. One must also move to a tax haven to avoid tax. Without changing country of residence, personal taxation may be avoided by the creation of a separate legal entity to which ones property is donated. The separate legal entity is often a company, trust, or foundation and these may also be located offshore, such as in the case of many private foundations. Assets are transferred to the new company or trust so that gains may be realized, or income earned, if assets are later transferred back to an individual, then capital gains taxes would apply on all profits. Also income tax would still be due on any salary or dividend drawn from the legal entity, for a settlor to avoid tax there may be restrictions on the type, purpose and beneficiaries of the trust. For example, the settlor of the trust may not be allowed to be a trustee or even a beneficiary, Tax results depend on definitions of legal terms which are usually vague. For example, vagueness of the distinction between business expenses and personal expenses is of concern for taxpayers and tax authorities
9.
U.S. Securities and Exchange Commission
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The U. S. Securities and Exchange Commission is an independent agency of the United States federal government. The SEC was created by Section 4 of the Securities Exchange Act of 1934, the SEC has a three-part mission, to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. To achieve its mandate, the SEC enforces the requirement that public companies submit quarterly and annual reports. MD&A will usually touch on the upcoming year, outlining future goals. In an attempt to level the field for all investors. Quarterly and semiannual reports from companies are crucial for investors to make sound decisions when investing in the capital markets. Unlike banking, investment in the markets is not guaranteed by the federal government. The potential for big gains needs to be weighed against that of sizable losses, the SEC makes reports available to the public through the EDGAR system. The SEC also offers publications on investment-related topics for public education, the same online system also takes tips and complaints from investors to help the SEC track down violators of the securities laws. The SEC adheres to a policy of never commenting on the existence or status of an ongoing investigation. Prior to the enactment of the securities laws and the creation of the SEC. They were enacted and enforced at the level, and regulated the offering. Though the specific provisions of these laws varied among states, they all required the registration of all offerings and sales, as well as of every U. S. stockbroker. However, these blue sky laws were found to be ineffective. For example, the Investment Bankers Association told its members as early as 1915 that they could ignore blue sky laws by making securities offerings across state lines through the mail. After holding hearings on abuses on interstate frauds, Congress passed the Securities Act of 1933, the subsequent Securities Exchange Act of 1934 regulates sales of securities in the secondary market. The Securities Act of 1933 is also known as the Truth in Securities Act and its goal was to increase public trust in the capital markets by requiring uniform disclosure of information about public securities offerings. For the first year of the enactment, the enforcement of the statute rested with the Federal Trade Commission
10.
United States Congress
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The United States Congress is the bicameral legislature of the federal government of the United States consisting of two chambers, the Senate and the House of Representatives. The Congress meets in the Capitol in Washington, D. C, both senators and representatives are chosen through direct election, though vacancies in the Senate may be filled by a gubernatorial appointment. Members are usually affiliated to the Republican Party or to the Democratic Party, Congress has 535 voting members,435 Representatives and 100 Senators. The House of Representatives has six non-voting members in addition to its 435 voting members and these members can, however, sit on congressional committees and introduce legislation. Puerto Rico, American Samoa, Guam, the Northern Mariana Islands, the members of the House of Representatives serve two-year terms representing the people of a single constituency, known as a district. Congressional districts are apportioned to states by using the United States Census results. Each state, regardless of population or size, has two senators, currently, there are 100 senators representing the 50 states. Each senator is elected at-large in their state for a term, with terms staggered. The House and Senate are equal partners in the legislative process—legislation cannot be enacted without the consent of both chambers, however, the Constitution grants each chamber some unique powers. The Senate ratifies treaties and approves presidential appointments while the House initiates revenue-raising bills, the House initiates impeachment cases, while the Senate decides impeachment cases. A two-thirds vote of the Senate is required before a person can be forcibly removed from office. The term Congress can also refer to a meeting of the legislature. A Congress covers two years, the current one, the 115th Congress, began on January 3,2017, the Congress starts and ends on the third day of January of every odd-numbered year. Members of the Senate are referred to as senators, members of the House of Representatives are referred to as representatives, congressmen, or congresswomen. One analyst argues that it is not a solely reactive institution but has played a role in shaping government policy and is extraordinarily sensitive to public pressure. Several academics described Congress, Congress reflects us in all our strengths, Congress is the governments most representative body. Congress is essentially charged with reconciling our many points of view on the public policy issues of the day. —Smith, Roberts, and Wielen Congress is constantly changing and is constantly in flux, most incumbents seek re-election, and their historical likelihood of winning subsequent elections exceeds 90 percent
11.
IRS targeting controversy
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In 2013, the United States Internal Revenue Service revealed that it had selected political groups applying for tax-exempt status for intensive scrutiny based on their names or political themes. This led to condemnation of the agency and triggered several investigations. Initial reports described the selections as nearly exclusively of conservative groups with terms such as Tea Party in their names, according to Republican lawmakers, liberal-leaning groups and the Occupy movement had also triggered additional scrutiny, but at a lower rate than conservative groups. The report was criticized by the committees Democratic minority, which said that the report ignored evidence that the IRS used keywords to identify both liberal and conservative groups, on October 23,2015, the Justice Department declared that no criminal charges would be filed. United States federal tax law, specifically Section 501 of the Internal Revenue Code, the statutory language of IRC501 generally requires civic organizations described in that section to be operated exclusively for the promotion of social welfare. Chris Van Hollen has filed a lawsuit against the IRS to stop the tradition of allowing groups engaged in politics to be registered under 501. This protection dates back to the United States Supreme Courts 1958 ruling in NAACP v. Alabama, nonprofit organizations dedicated to social welfare are not required to apply for IRS certification in order to operate under Section 501 tax exemption rules. However, being certified by the IRS can help attract more donations. On January 21,2010, the U. S. Supreme Court decided Citizens United v, some Tea Party leaders began forming political action committees as offshoots of their 501-tax-exempt organizations. Senate and House Democrats in early 2012 continued to press the IRS to investigate abuses of 501 tax-exempt status by organizations engaged in political activity, the senators also urged the IRS to issue new rules to prevent this type of abuse. The senators promised to introduce legislation to accomplish these aims if the IRS did not do so itself by promptly issuing new administrative rules, None of these letters called for the targeting of groups on the basis of political ideology. Between 2010 and 2012, the number of applications the IRS received each year seeking 501 certification doubled, during this period, budget cuts and personnel cuts reduced the IRSs ability to adequately perform its core duties. Eventually, IRS employees in Ohio, California, and Washington, while apparently none of these organizations applications were denied during this period, only 4 were approved. However, the IRS also selected several progressive- or Democratic-leaning organizations for increased scrutiny, an affiliate of the liberal group Emerge America had its request for tax-exempt status denied, leading to a review of the larger Emerge America organizations tax-exempt status. Ryan Chittum of the Columbia Journalism Review reported in 2011 that a number of news organizations saw their applications delayed for years after being flagged for additional review. Media Trackers, an organization, applied to the IRS for recognition of tax-exempt status. An investigation by The New York Times reported that several organizations selected for scrutiny by the IRS engaged in activities that could be construed as political, former IRS officials and tax experts say this type of behavior would provide a legitimate basis for additional scrutiny. Ohio State University law professor Donald Tobin said, While some of the I. R. S, questions may have been overbroad, you can look at some of these groups and understand why these questions were being asked
12.
Private foundation
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A private foundation is a legal entity set up by an individual, a family or a group of individuals, for a purpose such as philanthropy or an object legal in the economic operation. The Bill & Melinda Gates Foundation is the largest private foundation in the U. S. with over $38 billion in assets, however, most private foundations are much smaller. Approximately two-thirds of the more than 84,000 foundations which file with the IRS, in 2008, have less than $1 million in assets, and 93% have less than $10 million in assets. In aggregate, private foundations in the U. S. control over $628 billion in assets, unlike a charitable foundation, a private foundation does not generally solicit funds from the public. And a private foundation does not have the requirements and reporting responsibilities of a registered. Not all foundations engage in philanthropy, some private foundations are used for planning purposes. One of the characteristics of the legal entities existing under the status of Foundations is a diversity of structures and purposes. Nevertheless, there are common structural elements that are the first observed under legal scrutiny or classification. Others may be provided by the authority at each particular jurisdiction. The following foundations are set up under common law legal systems, a private foundation, in the United States, is a charitable organization described in the Internal Revenue Code by section 509. A private foundation is necessarily a 501 exempt organization and it is defined by a negative definition, by what it is not. A private foundation is not a charity, as described in section 170 through. Neither is it a section 509 organization, nor a supporting organization, Private foundations are subject to 2% excise taxes found in section 4940 through 4945 of the internal revenue code. Once a charity becomes a foundation, it retains that status unless it follows the difficult termination rules of section 507. The following foundations are set up under civil law legal systems, in Canada the Canada Revenue Agency is a branch of the Canadian government which regulates all foundations. Under Canadian law, since 1967, a foundation is controlled by a single donor or family through a board that is made up of a majority of directors at non-arm’s length. It is a registered charity with the Canada Revenue Agency. A public foundation is governed by a board that is made up of a majority of directors at arm’s length, a private foundation is not allowed to engage in any business activity, but it can operate its own charitable program
13.
Private equity
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In finance, private equity is a type of equity and one of the asset classes consisting of equity securities and debt in operating companies that are not publicly traded on a stock exchange. A private equity investment will generally be made by an equity firm. Bloomberg Businessweek has called private equity a rebranding of leveraged-buyout firms after the 1980s, common investment strategies in private equity include, leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital. In a typical leveraged-buyout transaction, a private-equity firm buys majority control of an existing or mature firm and this is distinct from a venture-capital or growth-capital investment, in which the investors invest in young, growing or emerging companies, and rarely obtain majority control. Private equity is often grouped into a broader category called private capital, generally used to describe capital supporting any long-term. The strategies private equity firms may use are as follows, leveraged buyout being the most important, the companies involved in these transactions are typically mature and generate operating cash flows. Leveraged buyouts involve a financial sponsor agreeing to an acquisition without itself committing all the capital required for the acquisition, to do this, the financial sponsor will raise acquisition debt which ultimately looks to the cash flows of the acquisition target to make interest and principal payments. Acquisition debt in an LBO is often non-recourse to the sponsor and has no claim on other investments managed by the financial sponsor. Historically the debt portion of a LBO will range from 60%–90% of the purchase price, between 2000–2005 debt averaged between 59. 4% and 67. 9% of total purchase price for LBOs in the United States. A private equity fund say for example, ABC Capital II, to this it adds $2bn of equity – money from its own partners and from limited partners. With this $11bn it buys all the shares of an underperforming company and it replaces the senior management in XYZ Industrial, and they set out to streamline it. The workforce is reduced, some assets are sold off, etc, the objective is to increase the value of the company for an early sale. The stock market is experiencing a market, and XYZ Industrial is sold two years after the buy-out for $13bn, yielding a profit of $2bn. The original loan can now be paid off with interest of say $0. 5bn, the remaining profit of $1. 5bn is shared among the partners. Taxation of such gains is at capital gains rates, notes, The lenders can insure against default by syndicating the loan to spread the risk, or by buying credit default swaps or selling collateralised debt obligations from/to other institutions. Often the loan/equity is not paid off after sale but left on the books of the company for it to pay off over time and this can be advantageous since the interest is typically offsettable against the profits of the company, thus reducing, or even eliminating, tax. Most buyout deals are much smaller, the average purchase in 2013 was $89m. The target company does not have to be floated on the stockmarket, buy-out operations can go wrong and in such cases the loss is increased by leverage, just as the profit is if all goes well
14.
Venture capital
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Venture capital firms or funds invest in these early-stage companies in exchange for equity–an ownership stake–in the companies they invest in. Venture capitalists take on the risk of financing risky start-ups in the hopes some of the firms they support will become successful. The start-ups are usually based on a technology or business model and they are usually from the high technology industries, such as information technology. The typical venture capital investment occurs after a seed funding round. The first round of venture capital to fund growth is called the Series A round. This institution helps identify promising new firms and provide them with finance, technical expertise, mentoring, marketing know-how, and business models. Once integrated into the network, these firms are more likely to succeed. However, venture capitalists decisions are often biased, exhibiting for instance overconfidence and illusion of control, a venture may be defined as a project prospective converted into a process with an adequate assumed risk and investment. With few exceptions, private equity in the first half of the 20th century was the domain of wealthy individuals, the Wallenbergs, Vanderbilts, Whitneys, Rockefellers, and Warburgs were notable investors in private companies in the first half of the century. In 1938, Laurance S. Rockefeller helped finance the creation of both Eastern Air Lines and Douglas Aircraft, and the Rockefeller family had vast holdings in a variety of companies. Eric M. Warburg founded E. M. Warburg & Co. in 1938, which would ultimately become Warburg Pincus, with investments in both leveraged buyouts and venture capital. The Wallenberg family started Investor AB in 1916 in Sweden and were early investors in several Swedish companies such as ABB, Atlas Copco, Ericsson, before World War II, money orders remained primarily the domain of wealthy individuals and families. Georges Doriot, the father of capitalism, founded INSEAD in 1957. Along with Ralph Flanders and Karl Compton, Doriot founded ARDC in 1946 to encourage investment in businesses run by soldiers returning from World War II. ARDC became the first institutional private-equity investment firm to raise capital from other than wealthy families. ARDC is credited with the first trick when its 1957 investment of $70,000 in Digital Equipment Corporation would be valued at over $355 million after the initial public offering in 1968. Former employees of ARDC went on to several prominent venture-capital firms including Greylock Partners and Morgan, Holland Ventures. ARDC continued investing until 1971, when Doriot retired, in 1972 Doriot merged ARDC with Textron after having invested in over 150 companies
15.
Leveraged buyout
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The use of debt, which has a lower cost of capital than equity, serves to reduce the overall cost of financing the acquisition. This reduced cost of financing allows greater gains to accrue to the equity, and, as a result, the term LBO is usually employed when a financial sponsor acquires a company. However, many transactions are partially funded by bank debt. LBOs mostly occur in private companies, but can also be employed with public companies, as financial sponsors increase their returns by employing a very high leverage, they have an incentive to employ as much debt as possible to finance an acquisition. In situations of normal companies with normal business risks, debt of 40–60% of the price are usual figures. The possible debt ratios vary significantly among the regions and the target industries, depending on the size and purchase price of the acquisition, the debt is provided in different tranches. Depending on the size of the acquisition, debt as well as equity can be provided by more than one party. Another form of debt that is used in LBOs are seller notes in which the seller effectively uses parts of the proceeds of the sale to grant a loan to the purchaser, such seller notes are often employed in management buyouts or in situations with very restrictive bank financing environments. Note that in close to all cases of LBOs, the only available for the debt are the assets. The financial sponsor can treat their investment as common equity or preferred equity among other types of securities, preferred equity can pay a dividend and has payment preferences to common equity. Junior debt often additionally has warrants and its interest is often all or partly of PIK nature, so mature companies with long-term customer contracts and/or relatively predictable cost structures are commonly acquired in LBOs. Relatively low fixed costs - Fixed costs create substantial risk for Private Equity firms because companies still have to pay them if their revenues decline. The first leveraged buyout may have been the purchase by McLean Industries, Inc. of Pan-Atlantic Steamship Company in January 1955, under the terms of that transaction, McLean borrowed $42 million and raised an additional $7 million through an issue of preferred stock. When the deal closed, $20 million of Waterman cash and assets were used to retire $20 million of the loan debt, in fact, it is Posner who is often credited with coining the term leveraged buyout or LBO. The leveraged buyout boom of the 1980s was conceived in the 1960s by a number of financiers, most notably Jerome Kohlberg, Jr. Working for Bear Stearns at the time, Kohlberg and Kravis, along with Kravis cousin George Roberts, began a series of what they described as bootstrap investments. Many of the target companies lacked a viable or attractive exit for their founders, as they were too small to be taken public, thus a sale to a buyer might prove attractive. Their acquisition of Orkin Exterminating Company in 1964 is among the first significant leveraged buyout transactions, by 1976, tensions had built up between Bear Stearns and Kohlberg, Kravis and Roberts leading to their departure and the formation of Kohlberg Kravis Roberts in that year
16.
Mezzanine capital
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In finance, mezzanine capital is any subordinated debt or preferred equity instrument that represents a claim on a companys assets which is senior only to that of the common shares. Mezzanine financings can be structured either as debt or preferred stock, mezzanine capital is often a more expensive financing source for a company than secured debt or senior debt. The higher cost of capital associated with mezzanine financings is the result of its being an unsecured, subordinated obligation in a capital structure. In compensation for the risk, mezzanine debt holders require a higher return for their investment than secured or more senior lenders. Mezzanine financings can be completed through a variety of different structures based on the objectives of the transaction. The basic forms used in most mezzanine financings are subordinated notes, the interest rate can be either fixed throughout the term of the loan or can fluctuate along with LIBOR or other base rates. PIK interest, Payable in kind interest is a form of payment in which the interest payment is not paid in cash. The ownership component in mezzanine securities is almost always accompanied by either cash interest or PIK interest, mezzanine lenders will also often charge an arrangement fee, payable upfront at the closing of the transaction. Arrangement fees contribute the least return, and their purposes are primarily to cover costs or as an incentive to complete the transaction. Because mezzanine lenders will seek a return of 14% to 20%, as a result, by using equity ownership and PIK interest, the mezzanine lender effectively defers its compensation until the due date of the security or a change of control of the company. Mezzanine financings can be made at either the company level or at the level of a holding company. This approach is taken most often as a result of the existing capital structure. In leveraged buyouts, mezzanine capital is used in conjunction with other securities to fund the purchase price of the company being acquired, typically, mezzanine capital will be used to fill a financing gap between less expensive forms of financing and equity. Often, a sponsor will exhaust other sources of capital before turning to mezzanine capital. Additionally, middle market companies may be unable to access the high yield market due to minimum size requirements, creating a need for flexible. In real estate finance, mezzanine loans are used by developers to secure supplementary financing for development projects. These sorts of mezzanine loans are secured by a second ranking real property mortgage
17.
Growth capital
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Companies that seek growth capital will often do so in order to finance a transformational event in their lifecycle. Growth capital can also be used to effect a restructuring of a balance sheet. Growth capital resides at the intersection of private equity and venture capital, growth capital investments are also made by more traditional buyout firms. Particularly in markets where debt is available to finance leveraged buyouts or where competition to fund startup businesses is intense. Growth equity investments, as defined by the National Venture Capital Association, feature the following, company is cash flow positive, profitable or approaching profitability. Company may be founder-owned and often has no prior institutional investment, investor is agnostic about control and purchases minority ownership positions more often than not. Industry investment mix is similar to that of venture capital investors, Capital is used for company needs or shareholder liquidity and additional financing rounds are not usually expected until exit. Investments are unlevered or use light leverage at purchase, investment returns are primarily a function of growth, not leverage. Convertible bond Mezzanine debt Bridging the finance gap, next steps in improving access to capital for small businesses. Industry Canada Private equity and venture capital, the role of the venture capital provider. An overview of the venture capital industry
18.
Private equity secondary market
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In finance, the private equity secondary market refers to the buying and selling of pre-existing investor commitments to private equity and other alternative investment funds. Given the absence of established trading markets for these interests, the transfer of interests in private equity funds as well as hedge funds can be more complex, sellers of private equity investments sell not only the investments in the fund but also their remaining unfunded commitments to the funds. For the vast majority of private equity investments, there is no listed public market, however, there is a robust, buyers seek to acquire private equity interests in the secondary market for multiple reasons. For example, the duration of the investment may be shorter than an investment in the private equity fund initially. Likewise, the buyer may be able to acquire these interests at an attractive price, finally, the buyer can evaluate the funds holdings before deciding to purchase an interest in the fund. The private equity secondary market features dozens of dedicated firms and institutional investors that engage in the purchase, such large volumes have been fuelled by an increasing number of players over the years, which ultimately led to what today has become a highly competitive and fragmented market. Additionally, major investment banking firms including Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, other institutional investors typically have appetites for secondary interests. More and more investors, whether private equity funds-of-funds or other institutional investors. Other niches within the market include purchases of interests in fund-of-funds and secondary funds, purchases of interests in real estate funds. As the private equity secondary market matures, non-traditional secondary strategies are emerging, since 2008, there have been a growing number of new entrants into the secondary transaction space, hoping to capitalize on what is perceived to be a growing market opportunity. Nearly all types of private equity funds can be sold in the secondary market, the transfer of the fund interest typically will allow the investor to receive some liquidity for the funded investments as well as a release from any remaining unfunded obligations to the fund. Typically, the buyer and seller agree on an arrangement that is more complex than a simple transfer of 100% ownership of the fund interest. Securitization — An investor contributes its fund interests into a new vehicle which in turn issues notes and generates partial liquidity for the seller, typically, the investor will also sell a portion of the equity in the leveraged vehicle. Also referred to as a collateralized fund obligation vehicle, stapled transactions — Occurs when a private equity firm is raising a new fund. A secondary buyer purchases an interest in a fund from a current investor. These transactions are initiated by private equity firms during the fundraising process. They had become less and less frequent during 2008 and 2009 as the appetite for primary investments shrunk, since 2009, a limited number of spinout transactions have been completed involving captive teams within financial institutions. Secondary directs or synthetic secondaries – This category is the sale of portfolios of investments in operating companies
19.
Equity co-investment
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In certain circumstances, venture capital firms may also seek co-investors. Private equity firms seek co-investors for several reasons, co-investors bring a friendly source of capital. Typically, co-investors are existing limited partners in an investment fund managed by the financial sponsor in a transaction. Unlike the investment fund however, co-investments are made outside of the existing fund, Co-investments are typically passive, non-controlling investments, as the private equity firm or firms involved will exercise control and perform monitoring functions. As a result, many private equity firms offer co-investments to their largest and most important investors as an incentive to invest in future funds. Private equity Fund of funds Financial sponsor CalPERS - Private Equity Industry Dictionary AltAssets Glossary AltAssets, The direct route Co-investments in funds of funds and separate accounts
20.
History of private equity and venture capital
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The history of private equity and venture capital and the development of these asset classes has occurred through a series of boom and bust cycles since the middle of the 20th century. Within the broader private equity industry, two distinct sub-industries, leveraged buyouts and venture capital experienced growth along parallel, although interrelated tracks, since the origins of the modern private equity industry in 1946, there have been four major epochs marked by three boom and bust cycles. The second boom and bust cycle emerged from the ashes of the savings and loan crisis, the insider trading scandals, the real estate market collapse and this period saw the emergence of more institutionalized private equity firms, ultimately culminating in the massive Dot-com bubble in 1999 and 2000. With the second private equity boom in the mid-1990s and liberalization of regulation for institutional investors in Europe, Investors have been acquiring businesses and making minority investments in privately held companies since the dawn of the industrial revolution. Later, J. Pierpont Morgans J. P. Morgan & Co. would finance railroads, as late as the 1980s, Lester Thurow, a noted economist, decried the inability of the financial regulation framework in the United States to support merchant banks. US investment banks were confined primarily to businesses, handling mergers and acquisitions transactions and placements of equity. Investment banks would later enter the space, however long after independent firms had become well established, with few exceptions, private equity in the first half of the 20th century was the domain of wealthy individuals and families. The Vanderbilts, Whitneys, Rockefellers and Warburgs were notable investors in private companies in the first half of the century. In 1938, Laurance S. Rockefeller helped finance the creation of both Eastern Air Lines and Douglas Aircraft and the Rockefeller family had vast holdings in a variety of companies. Eric M. Warburg founded E. M. Warburg & Co. in 1938, former employees of ARDC went on to found several prominent venture capital firms including Greylock Partners and Morgan, Holland Ventures, the predecessor of Flagship Ventures. ARDC continued investing until 1971 with the retirement of Doriot, in 1972, Doriot merged ARDC with Textron after having invested in over 150 companies. J. H. Whitney & Company was founded by John Hay Whitney, Whitney had been investing since the 1930s, founding Pioneer Pictures in 1933 and acquiring a 15% interest in Technicolor Corporation with his cousin Cornelius Vanderbilt Whitney. By far, Whitneys most famous investment was in Florida Foods Corporation, the company, having developed an innovative method for delivering nutrition to American soldiers, later came to be known as Minute Maid orange juice and was sold to The Coca-Cola Company in 1960. J. H. Whitney & Company continues to make investments in leveraged buyout transactions, before World War II, venture capital investments were primarily the domain of wealthy individuals and families. One of the first steps toward a professionally managed venture capital industry was the passage of the Small Business Investment Act of 1958, the 1958 Act officially allowed the U. S. Small Business Administration to license private Small Business Investment Companies to help the financing, additionally, it was thought that fostering entrepreneurial companies would spur technological advances to compete against the Soviet Union. Facilitating the flow of capital through the economy up to the pioneering small concerns in order to stimulate the U. S. economy was, in 2005, the SBA significantly reduced its SBIC program, though SBICs continue to make private equity investments. The real growth in Private Equity surged in 1984 to 1991 period when Institutional Investors, more often than not, these companies were exploiting breakthroughs in electronic, medical or data-processing technology
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Early history of private equity
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The early history of private equity relates to one of the major periods in the history of private equity and venture capital. Within the broader private equity industry, two distinct sub-industries, leveraged buyouts and venture capital experienced growth along parallel although interrelated tracks, the origins of the modern private equity industry trace back to 1946 with the formation of the first venture capital firms. Investors have been acquiring businesses and making minority investments in privately held companies since the dawn of the industrial revolution, later, J. Pierpont Morgans J. P. Morgan & Co. would finance railroads and other industrial companies throughout the United States. As late as the 1980s, Lester Thurow, a noted economist, US investment banks were confined primarily to advisory businesses, handling mergers and acquisitions transactions and placements of equity and debt securities. Investment banks would later enter the space, however long after independent firms had become well established, with few exceptions, private equity in the first half of the 20th century was the domain of wealthy individuals and families. The Vanderbilts, Whitneys, Rockefellers and Warburgs were notable investors in private companies in the first half of the century. In 1938, Laurance S. Rockefeller helped finance the creation of both Eastern Air Lines and Douglas Aircraft and the Rockefeller family had vast holdings in a variety of companies. Eric M. Warburg founded E. M. Warburg & Co. in 1938, former employees of ARDC went on to found several prominent venture capital firms including Greylock Partners and Morgan, Holland Ventures, the predecessor of Flagship Ventures. ARDC continued investing until 1971 with the retirement of Doriot, in 1972, Doriot merged ARDC with Textron after having invested in over 150 companies. J. H. Whitney & Company was founded by John Hay Whitney, Whitney had been investing since the 1930s, founding Pioneer Pictures in 1933 and acquiring a 15% interest in Technicolor Corporation with his cousin Cornelius Vanderbilt Whitney. By far, Whitneys most famous investment was in Florida Foods Corporation, the company, having developed an innovative method for delivering nutrition to American soldiers, later came to be known as Minute Maid orange juice and was sold to The Coca-Cola Company in 1960. J. H. Whitney & Company continues to make investments in leveraged buyout transactions, before World War II, venture capital investments were primarily the domain of wealthy individuals and families. One of the first steps toward a professionally managed venture capital industry was the passage of the Small Business Investment Act of 1958, the 1958 Act officially allowed the U. S. Small Business Administration to license private Small Business Investment Companies to help the financing, additionally, it was thought that fostering entrepreneurial companies would spur technological advances to compete against the Soviet Union. Facilitating the flow of capital through the economy up to the pioneering small concerns in order to stimulate the U. S. economy was, in 2005, the SBA significantly reduced its SBIC program, though SBICs continue to make private equity investments. During the 1960s and 1970s, venture capital firms focused their investment activity primarily on starting and expanding companies, more often than not, these companies were exploiting breakthroughs in electronic, medical or data-processing technology. As a result, venture capital came to be almost synonymous with technology finance and it is commonly noted that the first venture-backed startup was Fairchild Semiconductor, funded in 1959 by what would later become Venrock Associates. Venrock was founded in 1969 by Laurance S. Rockefeller, the fourth of John D. Rockefellers six children as a way to allow other Rockefeller children to develop exposure to venture capital investments
22.
Private equity in the 1980s
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Private equity in the 1980s relates to one of the major periods in the history of private equity and venture capital. Within the broader private equity industry, two distinct sub-industries, leveraged buyouts and venture capital experienced growth along parallel although interrelated tracks. The development of the equity and venture capital asset classes has occurred through a series of boom. The 1980s saw the first major boom and bust cycle in private equity, the purchase price for Gibson was $80 million, of which only $1 million was rumored to have been contributed by the investors. By mid-1983, just sixteen months after the deal, Gibson completed a $290 million IPO. Simon and Wesray would later complete the $71.6 million acquisition of Atlas Van Lines, the success of the Gibson Greetings investment attracted the attention of the wider media to the nascent boom in leveraged buyouts. Wometco Enterprises,1984 KKR completed the first billion-dollar buyout transaction to acquire the company with interests in television, movie theaters. The buyout comprised the acquisition of 100% of the shares for $842 million. Beatrice Companies,1985 KKR sponsored the $6.1 billion management buyout of Beatrice, at the time of its closing in 1985, Beatrice was the largest buyout completed. Sterling Jewelers,1985 One of Thomas H. Lees early successes was the acquisition of Akron, lee reported put in less than $3 million and when the company was sold two years later for $210 million walked away with over $180 million in profits. The combined company was a predecessor to what is now Signet Group. Revco Drug Stores,1986 The drug store chain was taken private in a management buyout transaction, however, within two years the company was unable to support its debt load and filed for bankruptcy protection. Bondholders in the Revco buyout ultimately contended that the buyout was so constructed that the transaction should have been unwound. Safeway,1986 KKR completed a friendly $5.5 billion buyout of supermarket operator, Safeway, Safeway was taken public again in 1990. Southland Corporation,1987 John Thompson, the founder of convenience store operator 7-Eleven, Jim Walter Corp,1987 KKR acquired the company for $3.3 billion in early 1988 but faced issues with the buyout almost immediately. Most notably, a subsidiary of Jim Walter Corp faced a large asbestos lawsuit, in 1989, the holding company that KKR used for the Jim Walter buyout filed for Chapter 11 bankruptcy protection. BlackRock,1988 Blackstone Group began the buildup of BlackRock. Blackstone sold its interest in 1994 and today BlackRock is listed on the New York Stock Exchange, Federated Department Stores,1988 Robert Campeaus Campeau Corporation completed a $6.6 billion merger with Federated, owner of the Bloomingdales, Filenes and Abraham & Straus department stores
23.
Private equity in the 1990s
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Private equity in the 1990s relates to one of the major periods in the history of private equity and venture capital. Within the broader private equity industry, two distinct sub-industries, leveraged buyouts and venture capital experienced growth along parallel although interrelated tracks. The development of the equity and venture capital asset classes has occurred through a series of boom. This period saw the emergence of more institutionalized private equity firms, additionally, the RJR Nabisco deal was showing signs of strain, leading to a recapitalization in 1990 that involved the contribution of $1.7 billion of new equity from KKR. Drexel Burnham Lambert was the investment bank most responsible for the boom in private equity during the 1980s due to its leadership in the issuance of high-yield debt. The firm was first rocked by scandal on May 12,1986, when Dennis Levine, Levine pleaded guilty to four felonies, and implicated one of his recent partners, arbitrageur Ivan Boesky. Largely based on information Boesky promised to provide about his dealings with Michael Milken, two days later, Rudy Giuliani, the United States Attorney for the Southern District of New York, launched his own investigation. For two years, Drexel steadfastly denied any wrongdoing, claiming that the criminal and SEC cases were based almost entirely on the statements of an admitted felon looking to reduce his sentence. However, it was not enough to keep the SEC from suing Drexel in September 1988 for insider trading, stock manipulation, defrauding its clients, all of the transactions involved Milken and his department. Giuliani began seriously considering indicting Drexel under the powerful Racketeer Influenced and Corrupt Organizations Act, under the doctrine that companies are responsible for an employees crimes. The threat of a RICO indictment, which would have required the firm to put up a bond of as much as $1 billion in lieu of having its assets frozen. Most of Drexels capital was borrowed money, as is common with most investment banks, Drexels CEO, Fred Joseph said that he had been told that if Drexel were indicted under RICO, it would only survive a month at most. It also agreed to pay a fine of $650 million – at the time, Milken left the firm after his own indictment in March 1989. Effectively, Drexel was now a convicted felon, in April 1989, Drexel settled with the SEC, agreeing to stricter safeguards on its oversight procedures. Later that month, the firm eliminated 5,000 jobs by shuttering three departments – including the retail brokerage operation, meanwhile, the high-yield debt markets had begun to shut down in 1989, a slowdown that accelerated into 1990. In the 1980s, the boom in private equity transactions, specifically leveraged buyouts, was driven by the availability of financing, particularly high-yield debt, the collapse of the high yield market in 1989 and 1990 would signal the end of the LBO boom. At that time, many observers were pronouncing the junk bond market “finished. ”This collapse would be due largely to three factors, The collapse of Drexel Burnham Lambert, the foremost underwriter of junk bonds. The dramatic increase in default rates among junk bond issuing companies, the historical default rate for high yield bonds from 1978 to 1988 was approximately 2. 2% of total issuance
24.
Private equity in the 2000s
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Private equity in the 2000s relates to one of the major periods in the history of private equity and venture capital. Within the broader private equity industry, two distinct sub-industries, leveraged buyouts and venture capital experienced growth along parallel although interrelated tracks. The development of the equity and venture capital asset classes has occurred through a series of boom. As the 20th century ended, so, too, did the dot-com bubble, the Nasdaq crash and technology slump that started in March 2000 shook virtually the entire venture capital industry as valuations for startup technology companies collapsed. Over the next two years, many firms had been forced to write-off large proportions of their investments. By mid-2003, the venture capital industry had shriveled to about half its 2001 capacity, nevertheless, PricewaterhouseCoopers MoneyTree Survey shows that total venture capital investments held steady at 2003 levels through the second quarter of 2005. As a percentage of GDP, venture investment was 0. 058% percent in 1994, peaked at 1. 087% in 2000, the revival of an Internet-driven environment have helped to revive the venture capital environment. However, as a percentage of the private equity market, venture capital has still not reached its mid-1990s level. Meanwhile, as the venture collapsed, the activity in the leveraged buyout market also declined significantly. Leveraged buyout firms had invested heavily in the sector from 1996 to 2000. In that year at least 27 major telecommunications companies, filed for bankruptcy protection, telecommunications, which made up a large portion of the overall high yield universe of issuers, dragged down the entire high yield market. Overall corporate default rates surged to levels unseen since the 1990 market collapse rising to 6. 3% of high yield issuance in 2000 and 8. 9% of issuance in 2001, default rates on junk bonds peaked at 10.7 percent in January 2002 according to Moodys. As a result, leveraged buyout activity ground to a halt, the major collapses of former high-fliers including WorldCom, Adelphia Communications, Global Crossing and Winstar Communications were among the most notable defaults in the market. In addition to the rate of default, many investors lamented the low recovery rates achieved through restructuring or bankruptcy. These firms were often cited as the highest profile private equity casualties, having invested heavily in technology, similarly, Forstmann suffered major losses from investments in McLeodUSA and XO Communications. Tom Hicks resigned from Hicks Muse at the end of 2004, deals completed during this period tended to be smaller and financed less with high yield debt than in other periods. Private equity firms had to cobble together financing made up of loans and mezzanine debt. Private equity firms benefited from the valuation multiples
25.
Financial sponsor
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A financial sponsor is a private equity investment firm, particularly a private equity firm that engages in leveraged buyout transactions. The companys CEO and other senior management maintain responsibility for day-to-day operational issues, various investor classes look to the financial sponsor to generate value in a company as much as the management or operations of the company. Additionally, many owned by financial sponsors will raise equity in the public markets through an initial public offering or as a means of exiting an investment. Various studies have been conducted to evaluate the impact of financial sponsor ownership on the performance of IPOs, Private equity Private equity firm Leveraged buyout
26.
Divisional buyout
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A divisional buyout or carveout, in finance, is a transaction in which a corporate division, business unit or subsidiary is acquired using the same financial structuring as a leveraged buyout. A D-RLBO is a leveraged buyout of a division or subsidiary that subsequently comes to trade on the public markets, example, Avon Products Inc. divested specialty jeweler Tiffany & Co. to private equity investors who subsequently accomplished an initial public offering. Hite, G. & Vetsuypens, M. R.1989, management buyouts of divisions and shareholder wealth. The Journal of Finance,44,953 –970, management buyout, Distinguishing characteristics and operating changes priorto public offering
27.
Leveraged recapitalization
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Such a maneuver is called a leveraged buyout when initiated by an outside party, or a leveraged recapitalization when initiated by the company itself for internal reasons. These types of recapitalization can be minor adjustments to the structure of the company. Leveraged recapitalizations are used by privately held companies as a means of refinancing, debt has some advantages over equity as a way of raising money, since it can have tax benefits and can enforce a cash discipline. The reduction in equity also makes the less vulnerable to a hostile takeover. Leveraged recapitalizations can be used by companies to increase earnings per share. This form of recapitalization can lead a company to focus on projects that generate cash. Also, if a firm cannot make its payments, meet its loan covenants or rollover its debt it enters financial distress which often leads to bankruptcy. Therefore, the debt burden of a leveraged recapitalization makes a firm more vulnerable to unexpected business problems including recessions. Capital structure substitution theory Leveraged buyout Dividend recapitalization Downes, John, dictionary of Finance and Investment Terms. CS1 maint, Multiple names, authors list Recapitalization at Investorwords. com
28.
Dividend recapitalization
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A dividend recapitalization in finance is a type of leveraged recapitalization in which a payment is made to shareholders. As opposed to a dividend which is paid regularly from the companys earnings. These types of recapitalization can be minor adjustments to the structure of the company. As with other leveraged transactions, if a firm cannot make its debt payments, therefore, the additional debt burden of a leveraged recapitalization makes a firm more vulnerable to unexpected business problems including recessions and financial crises. Typically a dividend recapitalization will be pursued when the equity investors are seeking to realize value from a private company, in their relatively brief period of management of Hostess Brands, maker of Twinkie brand snack cakes and other products, Apollo Global Management and C. Dean Metropoulos and Company added leverage and took a $900 million dividend, the third largest of 2015 in the private equity industry
29.
Business incubator
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A business incubator in business speak is a company that helps new and startup companies to develop by providing services such as management training or office space. The National Business Incubation Association defines business incubators as a catalyst tool for regional or national economic development. Business incubators differ from research and technology parks in their dedication to startup, research and technology parks, on the other hand, tend to be large-scale projects that house everything from corporate, government or university labs to very small companies. Most research and technology parks do not offer business assistance services, however, many research and technology parks house incubation programs. Incubators also differ from the U. S, Small Business Administrations Small Business Development Centers in that they serve only selected clients. SBDCs are required by law to general business assistance to any company that contacts them for help. In addition, SBDCs work with any business at any stage of development. Many business incubation programs partner with their local SBDC to create a shop for entrepreneurial support. Within European Union countries there are different EU and state funded programs that support in form of consulting, mentoring, prototype creation and other services. TecHub is one of examples for IT companies and ideas, the formal concept of business incubation began in the USA in 1959 when Joseph Mancuso opened the Batavia Industrial Center in a Batavia, New York, warehouse. Incubation expanded in the U. S. in the 1980s and spread to the UK, the U. S. -based International Business Innovation Association estimates that there are about 7,000 incubators worldwide. A study funded by the European Commission in 2002 identified around 900 incubation environments in Western Europe, as of October 2006, there were more than 1,400 incubators in North America, up from only 12 in 1980. Her Majestys Treasury identified around 25 incubation environments in the UK in 1997, by 2005, in 2005 alone, North American incubation programs assisted more than 27,000 companies that provided employment for more than 100,000 workers and generated annual revenues of $17 billion. Manufacture New York is a Manhattan-based fashion incubator and small-run production facility, Incubators have been of increased presence since 2011. New experiments like Virtual Business Incubators are bringing the resources of entrepreneurship hubs like Silicon Valley to remote locations all over the world, since startup companies lack many resources, experience and networks, incubators provide services which helps them get through initial hurdles in starting up a business. These hurdles include space, funding, legal, accounting, computer services, technology incubators account for 39% of incubation programs. One example of a type of incubator is a bioincubator. Bioincubators specialize in supporting life science-based startup companies, entrepreneurs with feasible projects in life sciences are selected and admitted for these programs
30.
Post-money valuation
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Post-money valuation is the value of a company after an investment has been made. This value is equal to the sum of the pre-money valuation, external investors, such as venture capitalists and angel investors, will use a pre-money valuation to determine how much equity to demand in return for their cash injection to a company. The implied post-money valuation is calculated as the amount of investment divided by the equity stake gained in an investment. If a company is worth $100 million and an investor makes an investment of $25 million, the investor will now own 20% of the company. This basic example illustrates the general concept, strictly speaking, the calculation is the price paid per share multiplied by the total number of shares existing after the investment—i. e. It takes into account the number of shares arising from the conversion of loans, exercise of in-the-money warrants, thus it is important to confirm that the number is a fully diluted and fully converted post-money valuation. The company receives an offer to invest $8,000,000 at $8 per share, the post-money valuation is equal to $8 times the number of shares existing after the transaction—in this case,2,366,667 shares. This figure includes the original 1,000,000 shares, plus 1,000,000 shares from new investment, plus 166,667 shares from the loan conversion, the fully converted, fully diluted post-money valuation in this example is $18,933,336. Note that the warrants cannot be exercised because they are not in-the-money, Pre-money valuation Forbes Investopedia, Whats the difference between pre-money and post-money. Ryan Roberts, What is a Pre-money and Post-money Valuation, samuel Wu, Venture Capital 101 for Startups - Valuation Joseph W. Bartlett, A Missing Piece of the Valuation Puzzle
31.
Pre-money valuation
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A pre-money valuation is a term widely used in private equity or venture capital industries, referring to the valuation of a company or asset prior to an investment or financing. If an investment adds cash to a company, the company will have different valuations before, the pre-money valuation refers to the companys valuation before the investment. This is calculated on a diluted basis. Usually, a company receives many rounds of financing rather than a big sum in order to decrease the risk for investors. Pre- and post-money valuation concepts apply to each round, own 100 shares, which is 100% of equity. If an investor makes a $10 million investment into Widgets, Inc, in this case, it is, $60 million – $10 million = $50 million The initial shareholders dilute their ownership to 100/120 =83. 33%. Lets assume that the same Widgets, Inc. gets the second round of financing, a new investor agrees to make a $20 million investment for 30 newly issued shares. If you follow the example above, it has 120 shares outstanding, post-money valuation is, $20 million * = $100 million The pre-money valuation is, $100 million – $20 million = $80 million The initial shareholders further dilute their ownership to 100/150 =66. 67%. Upround and downround are two associated with pre- and post-money valuations. If the pre-money valuation of the round is higher than the post-money valuation of the last round. If the pre-money valuation is lower than the valuation of the previous round. In the above example, Round B was an upround investment, a successful growing company usually receives a series of uprounds until it is launched on the stock market, sold, or merged. Downrounds are painful events for initial shareholders and founders, as they cause substantial ownership dilution, downrounds were common during the dot-com crash of 2000–2001
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Seed money
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Seed money, sometimes known as seed funding or seed capital, is a form of securities offering in which an investor invests capital in exchange for an equity stake in the company. The term seed suggests that this is an early investment, meant to support the business until it can generate cash of its own. Seed money options include friends and family funding, angel funding, Seed money can be used to pay for preliminary operations such as market research and product development. Investors can be the founders themselves, using savings and loans and they can be family members and friends of the founders. Investors can also be outside angel investors, venture capitalists, accredited investors, Seed funding involves a higher risk than normal venture capital funding since the investor does not see any existing projects to evaluate for funding. Hence, the investments made are usually lower as against normal venture capital investment, Seed funding can be raised online using equity crowdfunding platforms such as SeedInvest, Seedrs and Angels Den. Investors make their decision whether to fund a project based on the strength of the idea. Seed money may also come from product crowdfunding or from financial bootstrapping, bootstrapping in this context means making use of the cash flow of an existing enterprise, such as in the case of Chitika and Cidewalk. Government funds may be targeted toward youth, with the age of the founder a determinant, often, these programmes can be targeted towards adolescent self-employment during the summer vacation. Depending on the system, municipal government may be in charge of small disbursements. The European Commission runs microfinance programmes for self-employed people and businesses with fewer than 10 employees, European seed capital is available, but typically is limited to a 50% share. European SMEs can often benefit from the Eureka programme, which federates SMEs and research organisations,23 page description of EU support programmes for SMEs inventorium. org - South-West UK specific list European Commission page on Seed and start-up finance Angel investor Series A round
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Startup company
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A startup is usually a company such as a small business, a partnership or an organization designed to rapidly develop a scalable business model. Startup companies can come in all forms and sizes, some of the critical tasks are to build a co-founder team to secure key skills, know-how, financial resources and other elements to conduct research on the target market. Typically, a startup will begin by building a first minimum viable product, in addition, startups founders do research to deepen their understanding of the ideas, technologies or business concepts and their commercial potential. Business models for startups are generally found via a bottom-up or top-down approach, given that startups operate in high-risk sectors, it can also be hard to attract investors to support the product/service development or attract buyers. The size and maturity of the startup ecosystem where the startup is launched, the startup ecosystem consists of the individuals, institutions and organizations business incubators and business accelerators and top-performing entrepreneurial firms and startups. A region with all of elements is considered to be a strong entrepreneurship ecosystem. Investors are generally most attracted to new companies distinguished by their strong co-founding team. Attractive startups generally have lower bootstrapping costs, higher risk, successful startups are typically more scalable than an established business, in the sense that the startup has the potential to grow rapidly with a limited investment of capital, labor or land. Startups have several options for funding, venture capital firms and angel investors may help startup companies begin operations, exchanging seed money for an equity stake in the firm. Venture capitalists and angel investors provide financing to a range of startups, with the expectation that a small number of the startups will become viable. Factoring is another option, though it is not unique to startups, startups usually need to form partnerships with other firms to enable their business model to operate. To become attractive to businesses, startups need to align their internal features, such as management style. In their 2013 study, Kask and Linton develop two ideal profiles, or also known as configurations or archetypes, for startups that are commercializing inventions, the inheritor profile calls for management style that is not too entrepreneurial and the startup should have an incremental invention. This profile is set out to be successful in a market that has a dominant design. In contrast to this profile is the originator which has a management style that is highly entrepreneurial and this profile is set out to be more successful in a market that does not have a dominant design. New startups should align themselves to one of the profiles when commercializing an invention to be able to find, by finding a business partner a startup will have greater chances to become successful. Startup founders often have a casual or offbeat attitude in their dress, office space and marketing. Startup founders in the 2010s may wear hoodies, sneakers and other clothes to business meetings
