Think like a private equity enterprise...

I ran across a book review I really liked for Lessons from Private Equity that Any Company Can Use: http://online.wsj.com/article/SB120286252780263837-email.html, which is a book written by a couple of current Bain consultants.

As the title implies, the book suggests six "lessons" that organizations can use to improve their performance. These are:

1. Define the full potential of your business through extensive due diligence.
2. Develop a detailed blueprint for how you are going to achieve that potential.
3. Accelerate performance by matching the right people to the right tasks and measuring the right things.
4. Hire the right people by offering the right incentives and recruiting a useful board
5. Make equity "sweat" by loading up on debt and squeezing every last cent from your working capital.
6. Inculcate a "results culture" throughout the firm so that everyone works with the mind-set of a private-equity investor.

Now, as the review points out, most people may say - "So what?" - that's always the intent. But those of you that have experience working in a variety of organizations can quickly attest to the fact that any and all of these rules are violated at any given time.

The simple fact is that if rules similar to these are applied, the rigor around execution improves, and these lessons therefore serve as a nice "gut check" as management evaluates the strategic direction of an effort and the way that they are undertaken.

The reviewer takes exception to the authors' simplicity, and uses #5 as an example. Although I agree with the reviewers assertion that debt can be both a problem and a burden, my sense is that he was taking the interpretation of the lessons more literally than they may have been intended.

The central point is that the more exceptional PE firms do a better job of focusing an organization's efforts on those things that truly matter - and they often do that by making sound economic and strategic decisions that can be more difficult for corporate incumbents to undertake - for both personal and political reasons. By aligning incentives effectively around those decisions, they extract value.

That's a message that, however simple, all of us can learn from. But in the end, my friends, "the devvil is in the details"...

Inside money is still on REITs

Although I was never a heavy real estate investment trust (REIT) investor, those of you that were invested in these securities have done exceedingly well over the past 3 -5 years, and at lower overall risk thresholds. That being said, the market thus far this year has been flat to negative, and it looks like concern over interest rates, and recent deal multiples, are partially to blame. Insiders at major REITs feel disagree however, to the tune of 60MM in insider buys during the most recent quarter.

Judge for yourself: http://online.wsj.com/article/SB118471766230569645-search.html?KEYWORDS=reit&COLLECTION=wsjie/6month.

At the end of the day, one fundamental question is whether or not (given the current investment environment), there's a better place to park one's money. The stock market's a little frothy, and the ultra-wealthy have been placing bets in alternative investments like art and real estate for a long time. If you believe that the market may be at a mid-term top, and commercial or multi-unit real estate is reasonably priced, then who's to say that the REIT boom can't continue?

So who invests in Private Equity?

Here is report, released today, that helps explain the demand-side of Private Equity. Where does PE receive it's funding and how do those organizations allocate those funds? Find a short summary here: http://www.privateequityconnect.com/.

Who they are:

Where they invest:

Some new views on Private Equity...

Two Wall Street Journal features that I'm a big fan of --- the commentary from Breakingviews.com (usually on last page of Investing section) and "The Game" by Dennis Berman.

Dennis authored a great column recently, link here: http://online.wsj.com/article/SB118342676695356172.html?mod=home_deals_middle.

The premise of this column is that PE adapts, and that despite potential legislative and macroeconomic changes, these folks know how to provide value to the marketplace. Again, whether you are for or against the PE industry, you have to admire how effectively these organizations compete on an ongoing basis...

IBanking - Best Deals Ever

For those of you that enjoy Corp Finance and the Private Equity marketplace, an interesting article on Michael Madden's "Best Deal Ever". I think it's a great summary of the type of thinking that helps these individuals execute and provide value within the marketplace. Post your thoughts...

Link: www.dealmakerdaily.com/magazine/article/6458.html