Handbook of Research on Venture Capital: Volume 2
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Handbook of Research on Venture Capital: Volume 2

A Globalizing Industry

Edited by Hans Landström and Colin Mason

This Handbook charts the development of venture capital research in light of the global financial crisis, starting with an analysis of the current venture capital market and the changing nature of the business angel market. Looking at governance structures; the performance of venture capitalists in terms of investments, economic impact and human capital; geographical organization of business angels and venture capital global ‘hotspots’; this book also analyses the current state of venture capital research and offers a roadmap for the future.
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Chapter 3: Institutional investment in private equity

Sofia A. Johan


This chapter reviews institutional investment in private equity by investors such as pension funds and insurance companies. Private equity investments are investments made directly in investee companies, and are carried out primarily to provide the following types of working capital to investee companies: venture capital, growth capital, distressed investments capital, mezzanine capital and leveraged buyout capital. These are deemed by the industry to be distinct investment market segments. Venture capital, for example, refers to very high risk investments made in less mature companies, for the launch, early development, or expansion of a business, while leveraged buyout investments are provided to very mature companies which generate uniform operating cash flows. This chapter will cover institutional investment in private equity through (1) limited partnership private equity funds; (2) listed private equity funds; (3) private equity fund-of-funds; and (4) direct institutional investment into private investee companies. Limited partnership private equity funds are essentially pools of funds managed by a specialist private equity fund manager with the mandate to invest in the equity of private companies. Access to these funds is strictly limited to sophisticated investors such as institutional investors and high net-worth individuals. Listed private equity funds on the other hand are pools of funds that are listed on public exchanges and therefore are accessible by retail investors. Private equity fund-of-funds are similar in nature to limited partnership private equity funds but instead of investing in equity of private companies, investments are made in other private equity funds. Finally, investments in equities of private companies can be made directly by the institutional investor without going through a private equity fund manager.

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