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Exploring Advanced Private Equity Concepts

Apr 1, 2025

Lecture Notes: Advanced Topics in Private Equity at Wharton

Course Overview

  • Wharton School is renowned for its finance program
  • Featured course: Advanced Topics in Private Equity
    • Professor: Dan Zberman, former head of Europe and current Global Head of Capital Solutions at Warburg Pincus
    • Course involves analyzing a real deal by Warburg Pincus from 2011 (acquisition of The Mutual Fund Store)

Course Structure

  • Semester-long Project: Analyze an actual private equity deal
    • Includes a management presentation from the former CEO of the acquired company
    • Focus on due diligence, financial modeling (LBO, DCF, Comps)
    • Culminates in an investment committee simulation
  • Guest Speakers:
    • Partner from Helman and Friedman
    • Co-head of PE at Centerbridge Partners
  • Learning Approach:
    • Practical experience over traditional lectures

Private Equity Certificate Program

  • Offered by Wharton and Wall Street Prep with support from top firms like Blackstone, Carlyle, KKR
  • Features online self-paced learning
  • Access to alumni member database, networking events
  • Discounts available for early registration and using specific codes

Key Lessons Learned

Lesson 1: Exit Multiples and Returns

  • Returns often driven by rising exit multiples
  • High reliance on external market conditions rather than just financial engineering

Lesson 2: Impact of Dry Powder

  • Pressure to invest capital ('dry powder') can lead to subpar investments
  • Firms must deploy capital within a certain timeframe to avoid returning it to investors

Lesson 3: Carve-outs

  • Carve-outs are effective investments; involve purchasing a division from a larger company
  • Potential to unlock value by focusing resources on overlooked business segments

Lesson 4: Due Diligence

  • Importance of thorough due diligence to avoid falling in love with a company
  • Costly and time-intensive; better to lose money on due diligence than on a bad investment

Lesson 5: Financial Modeling

  • Models are invariably wrong, but crucial for understanding business drivers
  • Important to have a large Total Addressable Market (TAM) and high margins for investment safety

Financial Model Overview

  • Built detailed financial models as part of coursework
  • Components:
    • Assumptions tab
    • Asset Under Management Build-up
    • Operating Model (Income Statement, Balance Sheet, Cash Flow)
    • LBO and DCF Modeling
    • Comps Analysis
  • Emphasis on structure and process rather than precise numbers

Reflections on Course Project

  • Warburg Pincus acquisition of The Mutual Fund Store appeared strong, but faced unforeseen challenges
  • Reinforces complexity and unpredictability of private equity investments

Additional Resources

  • Mention of an MBA course on getting into top programs
  • Encouragement to watch related videos on private equity industry insights

Contacts and Links: Provided for further engagement and resources.

Full transcript