The KY Tang Top Ten for 2009
KY Tang’s Top Ten list for the year ahead has become an institution at the AVCJ Private Equity & Venture Forums – and beyond.
In November 2008, the founding chairman and managing partner of Affinity Equity Partners delivered his “Top Ten wishes for 2009.” This year, with a more optimistic mood at the Forum and in the industry, he delivered his “Top Ten reasons why this time is different” from previous crises and boom times – repeated below.
The Top Ten reasons why this time is different:
10. For the first time in ten years, it’s better to be a private equity fund with ten-year money than a hedge fund with quarterly redemptions.
9. This time, GPs and LPs are running to their lawyers to ask “how does this no-fault termination clause work?”
8. GPs now understand why due diligence should not be done in less than two weeks and encompass only one management meeting.
7. This time, GPs have guts. They dare to tell their LPs “this fund will never pay a carry, but it would be a pity if you lose such a talented management team. Therefore, Mr. LP, it is in your interest to amend the waterfall distribution structure, so that we can start paying carry when the cash return reaches 0.5x cost.”
6. This time, LPs have guts. They dare to publish a report with 74 recommendations on how fund terms and conditions should be structured.
5. This time, sellers of businesses have guts. Ten years ago, at the time of financial distress, they sold businesses to us at 4x EBITDA. This time, in a period of great financial distress, they won’t sell businesses to us for anything less than 8x EBITDA.
4. PE firms discovered that loan covenants are real.
3. A new standard has emerged in Asia for valuing private equity portfolios. It is called, “higher of cost or DCF”. [This is based on the accounting term "lower of cost or discounted cash flow".]
2. Last time, we invested 25% as equity and borrowed 25%. This time, we borrowed 25% and invest 75% as equity.
1. Last time, capitalism saved China. This time, China saved capitalism.
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