REVIEW: Private Equity as an Asset Class by Guy Fraser-Sampson

A Turkish Private Equity Web Log

In an effort to cover the Turkish Private Equity Industry - for the promotion of Entrepreneurship, the private equity asset-investment model, and the communication thereof.

05 August 2007

To the average man on the street, the world of private equity can take on a perception of big-men-banker types, cigar smoke-filled boardrooms and ivory towers. However, Guy Fraser-Sampson's new book, Private Equity as an Asset Class, puts a face of the common man to private equity that makes it an easy (and enjoyable) read for students of finance, PE/VC professionals, pensioners, gatekeepers and first-time investors.

For the private equity industry, the writing of this book was sorely needed. Guy Fraser-Sampson is the right man for the job - a man with 20+ years of PE experience and previously a partner and managing director at Horsley Bridge. It has just gone on sale in the United States and sold over 1000 copies in the first 10 weeks in Europe. When first I was sent his book, I was delighted. It has been described as "the only definitive text book in the world on private equity." After reading it, I can honestly say it will provide a benchmark and turning point for the global PE industry for years to come. Guy Fraser-Sampson has hit a home-run (pun intended).

Private Equity as an Asset Class follows his first book, Multi Asset Class Investment Strategy, which went into the Amazon "Hot 100" six weeks after launch and has been hailed as a major contribution to modern portfolio theory. With the objective of answering the question, "What is Private Equity?", Guy Fraser-Sampson does just that with a straight-forward, "common-sensed" approach - making this the most up-to-date tome on the PE/VC asset class investment model and an ideal textbook. Because of this, it provides an excellent template for future abridged editions, if the writer later feels so inclined.

In addition, the author makes good use of data compiled from Thomson Financial's VentureExpert bringing to the reader the most recent comparisons of the European and US PE/VC space. There is an excellent glossary and clarification of terms for the PE industry such as Internal Rate of Return (IRR) and Multiples. This also includes a breakdown of the similarities and difference between the venture and buyout spaces - by the sizes of funds, received returns and vintage years. Guy Fraser-Sampson takes this data, combines it with his experience at Horsley Bridge and provides possible reasons for the results and an inside look at the world of private equity. Some other key points that the reader can take away are:

For academics and students of finance: It provides the basics of mathematical and financial formulas that can be used as a springboard for continued reading and research of other PE/VC academic papers in circulation.
For Venture Capitalists and PE professionals: The book stresses (and proves) the need for a "home-run mentality" when making investments. From Horsley Bridge's (now famous) data on home-run selection, a home-run can represent only 5% of a venture fund's cost, but also represent 80% of total returns for a fund! Thus the mindset and the search for more Googles and YouTubes is mandatory for a successful fund. In addition, the data concerning fund sizes versus returns provides an excellent picture of a perceived "sweet spot" for optimal fund size with maximum return for investors.
For first-time PE/VC LPs and pension fund investors: The book is an accurate guide toward the development of a PE investment program and allocation of capital. It also provides a lecture on how IRR, multiples and a "Total Return" method are the only true ways to analyze prospective PE/VC funds. The idea of budgeting, measuring and analyzing compound annual returns of a PE/VC fund is simply impossible and therefore foolish.

If I were to provide some negative qualities of the book, I can only say that in some cases, the author defers discussion of certain areas as "needing a book of its own" where the reader may have preferred more discussion. Some sections of chapters do not read like a textbook, but rather like an editorial column or a novel. Where simplicity was attempted and with added real-life examples, it is here that perhaps more elaboration was needed.

To add to this, (and this is by far no fault of Guy Fraser-Sampson), the European data gleaned from Thomson Financial's VentureExpert is riddled with badly categorized outliers. It is an analytical tool filled with holes. Mr. Fraser-Sampson makes a note of this as "rather overzealous research on Thomson's part as well as some PE/VC organizations too enthusiastic for inclusion in the database". The reader is made aware of these sections. Therefore, some of Mr. Fraser-Sampson's results and analyses are speculations (although sound) based on his years of experience. If anything, this should be a wake-up call to Thomson Financial to get its house in order.

Despite this, Private Equity as an Asset Class is a welcome addition to anyone's finance library. As it is using the most recent data, PE professionals would be negligent not having it as a reference. For Pension Fund professionals and investors, it is a must-read, because it nearly is a "first" of its kind. So before you dive into those boring journals of master's theses and conference papers, you should pick up this book.

For questions about this review, please email me at turkvcanalyst@gmail.com. If Amazon is unable to deliver to your country, go to your nearest bookstore and order it (in Turkey, via Remzi or D&R).

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