Portfolio Companies Research Articles

Fire Risk Sub-Module Assessment under Solvency II. Calculating the Highest Risk Exposure

The European Directive 2009/138 of Solvency II requires adopting a new approach based on risk, applying a standard formula as a market proxy in which the risk profile of insurers is fundamental. This study focuses on the fire risk sub-module, framed within the man-made catastrophe risk module, for which the regulations require the calculation of the highest concentration of risks that make up the portfolio of an insurance company within a radius of 200 m. However, the regulations do not indicate a specific methodology. This study proposes a procedure consisting of calculating the cluster with the highest risk and identifying this on a map. The results can be applied immediately by any insurance company, covered under the Solvency II regulations, to determine their maximum exposure to the catastrophic man-made risk of fire, instantly providing them with the necessary input for calibration of the solvency capital requirement.

ESG in Emerging Markets: The Value of Fundamental Research and Constructive Engagement in Looking beyond ESG Ratings

The growth of ESG funds has been strong globally, but particularly within the emerging markets equity asset class. The founder and a partner of Mobius Capital Partners describe their differentiated approach to ESG investing in emerging markets using a series of case studies. Mobius Capital professes to be an emerging‐markets active ownership fund devoted to improving the ESG performance, while at the same time profiting from misleading ESG ratings and standards, in their portfolio companies. The authors discuss the pitfalls of using off‐the‐shelf ESG ratings and make a strong case for rigorous fundamental research combined with active ownership.Using a case study of Sunny Optical in China, the authors show that the mediocre external ESG rating of the company failed to reflect the company's ESG strengths. The authors also use the example of Yes Bank in India to demonstrate that a high ESG rating does not necessarily translate into high ESG standards. Third and last, the authors describe how a Taiwanese portfolio company's world‐class human capital and R&D capabilities were a core part of Mobius Capital's investment thesis.

Asset liquidity and venture capital investment

We examine the relationship between asset market liquidity and venture capital (VC) investment and find that it is inverted U-shaped. Asset liquidity and VC investment are positively related for low levels of asset liquidity but negatively related for higher levels of asset liquidity. We also document evidence that VC firms with more industry experience invest more in a liquid asset market than those without industry experience or with significant experience in other industries. Portfolio companies obtained their first investment in a liquid asset market are less likely to exit successfully; however, given a successful exit, they prefer to exit through mergers and acquisitions rather than going public.

Co relating NIFTY 50 Index Trend’s impact on NSE’s Sector based Indices Growth Momentum in Post COVID-19 led Indian Economy with Special reference to NIFTY Bank, NIFTY Consumer Durables, NIFTY IT and NIFTY Pharma Indices using Arithmetic Modelling

The NIFTY 50 is the flagship index on the National Stock Exchange of India Ltd. (NSE). The Index tracks the behavior of a portfolio of blue chip companies, the largest and most liquid Indian securities. It includes 50 of the approximately 1600 companies traded (listed & traded and not listed but permitted to trade) on NSE, captures approximately 65% of its float-adjusted market capitalization and is a true reflection of the Indian stock market. This study probed in to the correlation between NIFTY 50 and NIFTY Bank, NIFTY 50 and NIFTY Consumer Durables, NIFTY 50 and NIFTY IT and NIFTY 50 and NIFTY Pharma Indice.

Simulation Of Optimal Portfolio Using Single Index Model and Markowitz Model On Lq-45 Index Shares For 2018

The essence of portfolio formation is to reduce risk by means of diversification, namely allocating a number of funds to various investment alternatives that are negatively correlated. To select returns in a portfolio, you can use the Single Index Model and the Markowitz Model. This study was conducted with the aim of comparing the calculation of which company portfolios can provide a good rate of return with a small risk using the Single Index and Markowitz Model based on the sector of the company. So that the results of this study can provide recommendations to investors in decision making on portfolio selection. The research was conducted on companies indexed by LQ 45 on the Indonesia Stock Exchange. The research period is to use companies indexed by LQ 45 in 2018 for two periods.

Does Carbon Risk Matter? Evidence of Carbon Premium in EU Energy-Intensive Companies

In this paper we have assessed the impact of the European Union’s Emissions Trading Scheme (EU ETS) on the level of the carbon premium. The aim of the study is to determine whether there is a stable carbon premium in energy-intensive sectors. Unlike other studies, our research sample included not only companies in the energy sector, but also entities classified as energy-intensive. In the research, we used our own criterion for allocating companies to a clean and dirty portfolio, which made it possible to make the estimation of the carbon premium more resistant to changes in the rules for allocation of emission allowances. We detected a positive, statistically significant carbon premium in the years 2003–2012 and a negative one in the years 2013–2015, but we did not detect a statistically significant carbon premium in the period 2016–2019. This means that there are no grounds for concluding that there is a stable, positive carbon premium for energy-intensive companies subject to the EU ETS over time. We have also noticed that a significant problem in studying the impact of the EU ETS on the carbon premium is the use of static portfolios of clean and dirty companies

Do Index Funds Monitor?

Abstract Passively managed index funds now hold over 30$\%$ of U.S. equity fund assets; this shift raises fundamental questions about monitoring and governance. We show that, relative to active funds, index funds are less effective monitors: (a) they are less likely to vote against firm management on contentious governance issues; (b) there is no evidence they engage effectively publicly or privately; and (c) they promote less board independence and worse pay-performance sensitivity at their portfolio companies. Overall, the rise of index funds decreases the alignment of incentives between beneficial owners and firm management and shifts control from investors to managers.

An analytics model for TelecoVAS customers\u2019 basket clustering using ensemble learning approach

Value-Added Services at a Mobile Telecommunication company provide customers with a variety of services. Value-added services generate significant revenue annually for telecommunication companies. Providing solutions that can provide customers of a telecommunication company with relevant and engaging services has become a major challenge in this field. Numerous methods have been proposed so far to analyze customer basket and provide related services. Although these methods have many applications, they still face difficulties in improving the accuracy of bids. This paper combines the X-Means algorithm, the ensemble learning system, and the N-List structure to analyze the customer portfolio of a mobile telecommunication company and provide value-added services. The X-Means algorithm is used to determine the optimal number of clusters and clustering of customers in a mobile telecommunication company. The ensemble learning algorithm is also used to assign categories to new Elder customers, and finally to the N-List structure for customer basket analysis. By simulating the proposed method and comparing it with other methods including KNN, SVM, and deep neural networks, the accuracy improved to about 7%.

Improving the performance of governmental venture capital firms: Reforms at Shenzhen Capital Group

ABSTRACT This paper documents how Shenzhen Capital Group (SCG) tackled agency problems faced by governmental venture-capital firms (GVCs) by adopting an expansion strategy and undertaking a series of reforms in its compensation scheme and decision-making process. Empirical results show that after SCG’s reforms, portfolio companies funded by SCG or a SCG-led syndicate were more likely to achieve successful exits through IPO or M&A than those financed by other GVCs. This paper provides evidence and a live example of how GVCs can effectively mitigate agency problems to achieve better performance.

Private equity fondovi i hrvatsko iskustvo

Private equity funds are important players in the capital market, investing billions of dollars and euros in portfolio companies every year worldwide and in Europe, thus improving their business and development at almost all stages of their life cycle. Although Croatia lags far behind in this respect - both in terms of foreign private equity funds investing in Croatian companies and in terms of developing the private equity industry in Croatia - we believe it is important to analyze private equity funds and their characteristics in order to gain a full understanding of them . Therefore, this paper will try to define private equity funds and private equity and their interconnection, and explain the various forms and types of equity issued in private equity investments. Furthermore, the paper outlines the basic characteristics of private equity funds, which are crucial for understanding the way they operate, the relationship with the portfolio company and investors. Private equity funds have a specific lifespan and term, and bear significant risks (greater than those of the “infamous” hedge funds). They are meant for professional investors whose approach in portfolio companies is “hands on”. The paper also presents the most common structures of private equity funds, which differ significantly from those in Croatia, whose legislative framework unfortunately still places strong legal obstacles for the efficient and effective functioning of private equity funds. Finally, the paper presents the Croatian experience with private equity funds, with a description of the first private equity funds in Croatia and a special reference to economic cooperation funds, as a special feature of the Croatian capital market and private equity industry.

THE EFFECT OF TALENT MANAGEMENT ON EMPLOYEE PERFORMANCE WITH CORPORATE CULTURE AS A MEDIATING VARIABLE

Talent management is a dynamic and comprehensive process for developing the highest potential employees in an organization through direct and integrated development. To increase revenue and capabilities according to the company's portfolio in the telecommunications sector, especially in digital services, the company initiated a talent management program in the form of an internal corporate start-up program. The internal corporate start-up program is an initiative program that aims to capture and accelerate digital business innovation from employees. However, the evaluation process is still focused on the produced products' business aspects, not on the human resources aspect. Therefore, it is necessary to evaluate the relationship between talent management programs and the improvement of company human resources (especially aspects of corporate culture and employee performance). Corporate culture is an important factor because the internal corporate start-up program is one way to encourage a culture of innovation in the corporate environment. The samples used were saturated samples, in which the population was all employees who were members of the internal corporate start-up program, 55 employees located in Jakarta. The data processing and analysis method used was structural equation modeling-partial least square (SEM-PLS). SEM-PLS analysis results showed that corporate culture directly affected employee performance and acted as a mediating variable between talent management and employee performance. Keywords: corporate culture, employee performance, human resources, SEM PLS, talent management

Exploring the Internationalization Process, Behavior, and Patterns of Born Global Ride-Hailing Firms

The purpose of this study is to explore the internationalization process, behavior, and patterns of ride-hailing firms through the use of the born global firms (BGFs) internationalization model as a conceptual framework. The research method will be based on the purpose of the study. A multiple-case study is used to comprehensively analyze the phenomenon under investigation and explore the behavior and pattern between the case studies. Data was collected through documentation reviews such as a financial report, company portfolio, business plan, and previous research within the subject from seven ride-hailing firms to allow for triangulation. Data analysis of the study found seven themes to answer the research question. The finding suggests that ride-hailing firms: 1) Enter the home market as a pioneer, and the internationalization can be done as both pioneer, and follower. 2) Expand the market through the use of concentration or combination strategy. 3) Use wholly owned subsidiaries as their main entry form. 4) Ride hailing firms move from global standardization to local adaptation the longer they operate in a market. 5) Ride hailing firms prefer a born regional and born-again global internationalization model. The two limitations of this research are the research methodology and sampling strategy that limit the results' generalizability. The results will help to extend BGFs’ internationalization models and add, confirm, and provide new knowledge regarding the ride-hailing industry. They also provide resources for practice such as founders, managers, entrepreneurs, consultants, and coaches to understand how BGFs’ internationalization in the ride-hailing sector works.

From Governing to Managing: Exploring Modes of Control in Private Equity Relationships

ABSTRACT Despite the economic significance of private equity (PE) firms, there has been limited investigation into the control mechanisms they implement to manage relationships with their portfolio companies. Through a comparative field study, we describe the role and characteristics of controls implemented by PE firms and the contextual factors associated with the relative importance of different control mechanisms. Evidence shows that control mechanisms play an important role in directing the actions of portfolio companies and that there is significant variation between PE firms in terms of the combination of formal contracting, results, behavior, and social controls that are relied upon. We find that the primary factors associated with the choice of control combination are the equity arrangement and the perceived cognitive style of top management in the portfolio company. From our analysis, we derive a framework of four control combinations that are aligned to variations in these two factors. Our analysis also points to the potential interdependencies that arise between control mechanisms within each control combination.

Gender Gaps in Venture Capital Performance

AbstractWe explore gender differences in performance in a comprehensive sample of venture capital investments in the United States. Investments by female venture capital investors have significantly lower success rates than investments by their male colleagues when controlling for personal characteristics, including employment and educational history, and portfolio companies’ characteristics. The gender differences in investment outcomes are not due to female investors being less skilled but, rather, are largely attributable to female investors receiving less benefit from the track records of their colleagues. Performance differences disappear in older, larger firms and firms with other female investors. This supports the view that formal feedback mechanisms and hierarchies are potentially useful in ameliorating the female performance gap.

Does a mutual fund's exposure to pollution influence its environmental engagements?

This paper studies the relationship between mutual fund management's direct experience with air pollution and the fund's engagements with portfolio companies on environmental issues. We find that higher air pollution in a mutual fund's headquarter county increases the propensity of the fund to vote in support of shareholders' environmental proposals and to liquidate its holdings of portfolio firms with lower environmental ratings. We also find that greater air pollution exposure of a mutual fund predicts better environmental performance at its portfolio companies. To establish causality, we use elevated air pollution produced by large wildfires in a mutual fund's headquarter county as an instrument and identify similar effects on the outcome variables. These results suggest that a mutual fund's direct exposure to pollution can inform its environmental engagements at its portfolio companies.

The Project on Impact Investments' Impact Investment Database

Impact investing has grown significantly over the past 15 years. From a niche investing segment with only $25 billion AUM in 2013 (WEF 2013), it experienced double-digit growth and developed into a market with an estimated $502 billion AUM (Mudaliapar and Dithrich 2019). Despite the growth and maturation of impact investing, gathering complete and accurate data on the characteristics of this industry continues to be a challenge. This paper describes the creation of a new dataset on both impact investors and the portfolio companies they fund, comprising 445 impact investors and 14,165 portfolio companies. We code impact investors according to established categories such as legal form, types of investments and return objectives. We then develop measures of the relative importance of social impact for each investor in an effort to add a new analytic categorization. We conclude by describing the distribution of investors and firms across these various categories.

Organizational Structure and Decision-Making in Corporate Venture Capital

This paper studies corporate venture capital (CVC) units of large US corporations to learn how they make decisions across several areas: internal organization of CVC units, relationships with parent companies, CVC unit objectives, investment process and approval, deal structure, relationship with portfolio companies, compensation, and composition of CVC teams. The study is conducted by interviewing senior team members of seventy-four CVC units, representing 78% of the active CVC units of companies in the S&P 500 index. CVC units are organized in significantly more diverse ways than institutional VC firms. Unlike institutional VC firms, most CVC units do not manage committed venture funds, but instead invest from the balance sheets of their parent companies. Investment committees, in which parent company executives play a pivotal role in approving individual decisions, are common. Many corporate venture capitalists (CVCs) believe executives at their parent companies do not understand the norms of the venture space. The demographic composition of senior team members at CVC units is very different than that of their counterparts at institutional VC firms. The results raise a number of issues about the economic role of CVC units in corporate innovation.

Prosocial Antitrust

Antitrust law is at the center of today’s public debate. It has even emerged as a rare unifying force, with bipartisan promises to combat the concentration of economic power, starting with breaking up Big Tech. Meanwhile, the business and investment community is grappling with mounting systematic risks arising from the pandemic, climate change, income inequality, and racial injustice. Unexpectedly, the largest asset managers in the world find themselves on the front lines of these battles. Due to the rise of index investing, these “universal owners” manage portfolios that are so large and diversified, their holdings mirror the entire economy. Their diversification protects them against idiosyncratic risk, but greatly exposes them to these systematic risks.The universal owners are keenly aware of their exposure to these systematic risks. They are turning to their portfolio companies and increasing demands on directors and managers to “serve a social purpose” and reduce their negative externalities. Public-regarding pronouncements from CEOs of Wall Street’s biggest firms ring hollow to many shareholder primacy loyalists. But the skeptics are missing the economic logic underlying this paradigm shift—diversified shareholders do not want companies to externalize their negative impacts onto the rest of the investors’ portfolios. Many companies are rising to the challenge and making bold commitments. However, many are recognizing that, to satisfy pervasive social and environmental challenges, they must collaborate with their competitors. This Article reveals that current antitrust law is a barrier to this collaboration and offers a policy proposal for aligning antitrust law with the demands upon the prosocial corporation. The COVID-19 pandemic has taught us that we are all interconnected. Climate change will continue to deepen that understanding. The problems we face are difficult, but they are not insurmountable. To solve them, we must value collaboration at least as much as we value competition.

Buyouts: A Primer

This paper provides an introduction to buyouts and the academic literature about them. Buyouts are initiated by “buyout funds”, which are limited partnerships raised from mostly institutional investors. The funds earn returns for their investors by improving the operations of the firms they acquire and exiting them for a profit. Buyout funds have grown substantially and currently raise more than $400 billion annually in capital commitments. We first discuss the institutional environment that developed to foster such buyouts and to provide incentives for general partners and firm managers to earn returns for the fund’s investors. We then describe various strategies that funds use to increase the values of their portfolio companies. The paper provides up to date statistics on all aspects of the buyout industry. Finally, we present a summary of the academic literature on buyouts. This literature has paid particular attention to the extent to which buyouts earn risk-adjusted abnormal returns for their investors, as well as the sources of those returns.

Does Private Equity Systematically Over-Lever Portfolio Companies?

Detractors have warned that Private Equity (PE) funds tend to over-lever their portfolio companies because of an option-like payoff, building up debt overhang and widespread bankruptcy risks. Drawing on standard trade-off theory, this paper argues PE-ownership leads to higher levels of optimal (value-maximizing) leverage. I embed key features of PE-ownership into a model of firm value, leverage and credit risk. Using a large sample of PE-sponsored leveraged buyouts (LBO), the estimated model fully explains both the level and change in leverage ratios in the data following PE-takeover. Higher levels of optimal leverage arise endogenously from (i) lower asset volatility (ii) higher expected future return and (iii) lower deadweight bankruptcy costs. In equilibrium, tax benefit is greater and expected distress cost of debt is much lower since bankruptcy is both less likely and less costly. Counterfactual analysis reveals substantial loss in firm value if PE sub-optimally chose lower leverage. Post-LBO, I estimate Distance-to-Default increases by 28 percent and credit spreads narrow by 3.6 percentage points for the median firm, suggesting concerns about default risks may have been overstated. Additional tests show PE-backed firms receive equity injections from sponsoring funds if they fall into financial distress, corroborating the lower distress cost channel. My results suggest new policies regulating leveraged loans should focus on the borrower's optimal capital structure.