Private Capital

In Private Capital: The Complete Guide to Private Markets Investing, renowned private markets investor and expert Dr. Stefan W. Hepp delivers an insightful and comprehensive exploration of the history, nature, and influence of private market investing. The author offers a robust examination of the key practical and conceptual issues faced by investors as they move forward into the future.

In the book, you'll find fulsome discussions of the rise of private market investment following the conclusion of World War II, as well as why the limited partnership became the dominant investment vehicle for private equity. You'll also discover the importance of the convergence of technology, government, academia, and venture capital that came to define what we now know as Silicon Valley.

The book includes:

• Explanations of the emergence of buyout firms, as well as why and how buyouts differ from other forms of mergers and acquisitions
• Examinations of the explosive growth of private equity and other private asset classes since the turn of the millennium
• Discussions of the issues set to dominate the future of private markets, including ESG investing, value creation, unicorns, special purpose acquisition companies (SPACs), and more

A must-read book for regulators, investors, asset managers, entrepreneurs, founders, and other businesspeople, Private Capital will earn a place on the bookshelves of anyone with a stake or interest in private equity and other private asset classes.

Abbreviations ix

Introduction 1

Part I The Beginning 9

Chapter 1 Funding Private Enterprise 11

Chapter 2 Enterprise Financing in the USA from WWII to the 1960s 67

Chapter 3 How Silicon Valley Came to Be 77

Chapter 4 US Private Equity During the 1960s and 1970s 111

Part II Booms and Busts 157

Chapter 5 Private Equity During the 1980s 159

Chapter 6 The 1990s: Dotcom Boom and Bust 193

Chapter 7 A Private Markets Boom Between Two Crises 261

Part III Becoming Indispensable 355

Chapter 8 The GFC and the Surge of Private Markets 357

Chapter 9 Responding to Shifting Dynamics: Intermediaries, VC, and Growth Financing 435

Chapter 10 Buyouts, Private Debt, and Real Assets During the Post-GFC Boom 517

References 607

Acknowledgments 671

About the Author 675

Index 677

DR. STEFAN W. HEPP, a finance veteran since the late 1980s, started his career at Salomon Brothers and Morgan Stanley, where he served on Bank Morgan Stanley's Management Committee before he founded and led SCM Strategic Capital Management, a global private markets investment firm with about ten billion dollars in assets. After SCM was acquired by Marsh & McLennan Company, he became the Global Business Leader for Private Markets at Mercer. He serves on the boards of several financial institutions. Stefan has been a consultant for international organizations such as the World Bank and the American Enterprise Institute. He received his Ph.D. in Economics from the University of St. Gallen and an MBA from the University of Chicago Booth School of Business, where he also teaches in the full-time MBA program.

Since the year 2000, private markets investing has grown over 25-fold. It broke the $10 trillion assets under management (AuM) mark in 2021. Why has an industry that began as a small-scale endeavour of few practioners at the fringe of the wider asset management industry grown to such mammoth proportions? And what significant events and trends have shaped its evolution?

In Private Capital, veteran global finance and private markets expert Dr. Stefan W. Hepp delivers a comprehensive and insightful exploration of the history, nature, and influence of private market investment, as well as the key practical and conceptual issues faced by investors as they invest in the asset class. These insights are combined with a practitioner’s view and the experience gained over many years of investing in the asset class that provides context and highlights relevant lessons for those investing in the asset class or dealing with private market firms.

The book charts the origins of risk capital and the financing of entrepreneurial ventures since the Age of Discovery and asks what are the grand dynamics that drove the formation of financial capital, the intermediation between owners of capital and entrepreneurs, and shaped the regulatory and institutional environment in which capital markets evolved. The historical perspective provides insights into the role of public and private equity investing over the centuries. It reveals patterns of booms and busts, overinvestment, consolidation, and conditions that favor public or private equity that hold valuable lessons for today’s investors. The book also asks why modern venture capital and buyouts emerged after centuries of evolution of capital markets and the growing depth and sophistication of stock markets. By analyzing the institutionalization of capital markets and the political and regulatory trends that shaped the investment landscape, the author shows how opportunities were created that allowed the private market industry to grow to its present size. He discusses how policy decisions that enable these investments to flourish can bestow a competitive advantage upon nations.

You’ll also learn about the different types of private market investing across the full spectrum from venture capital and buyouts to private debt and real assets and how they differ in their deal structures value creation strategies.

This book intends to fill the void by offering an objective perspective as the first compendium that provides an in-depth overview of the full spectrum of private markets investing and reviews the empirical evidence of the private market industry’s track record by using a wealth of data that is typically not publicly accessible.

PRAISE FOR PRIVATE CAPITAL

“This book not only demystifies the world of private markets investing but also provides invaluable insights into how individuals and businesses can harness the power of private capital to drive innovation, growth, and financial success.”
— Prof. Dr. Dr. Ann-Kristin Achleitner, Scientific Director, Center for Entrepreneurial and Financial Studies – CEFS at the Technical University Munich

“A comprehensive, detailed and entertaining Tour d’Horizon of Private Equity. Love it.”
—Dr. Marcel Erni, Co-Founder and Member of the Board of Directors of Partners Group

“Stefan Hepp has authored a tour de force for the alternative investment industry. Never before have we seen such an ambitious, sweeping and comprehensive overview, spanning centuries, continents and asset classes.”
—Blair V. Jacobson, Partner, Co-Head of European Credit of Ares Management

“Stefan Hepp provides a broad and deep history of private capital in its many forms and manifestations. As such, Private Capital is extremely useful for anyone who wants to understand the past and present of private investing.”
— Prof. Steven N. Kaplan, Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance at the University of Chicago Booth School of Business

“ Private Capital is storytelling at its best, taking us on a detailed journey through the pivotal events alongside the visionaries who helped shape our industry and providing rich context to understand the current structure and form of an industry so vital to drive the growth economy.”
—Walter G. Kortschak, Senior Advisor and former Managing Director of Summit Partners

“I thoroughly enjoyed the wonderfully written Private Capital —it is certain to be a classic about private investment markets.”
—David. M. Rubenstein, Co-Founder and Co-Chairman of the Board, The Carlyle Group

“This book makes private markets investing public and I am sure students and PE practitioners all over the world will find Private Capital a fascinating must read.”
—Christophe Sarrasin, CFA, CAIA, Director of the Nestlé Pension Fund

“Private Capital is both extremely well written and extremely comprehensive. This book should be required reading for every MBA student and for anyone entering this asset class as a profession.”
—Brooks D. Zug, Co-Founder and Senior Managing Director Emeritus, HarbourVest

“Private Capital is the first book to provide a comprehensive and thorough overview of the evolution of today’s ten trillion dollar industry since its infancy.”
—Dr. Rüdiger R. Stucke, Senior Vice President, Head of Quantitative Research, Warburg Pincus LLC