AN INTRODUCTION TO INVESTMENT BANKS, HEDGE FUNDS, AND PRIVATE EQUITY
The New Paradigm To order this title, and for more information, click here
By David Stowell, Kellog School of Management Northwestern University Evanston, IL 60208
Contents Section One: Investment Banking Chapter 1 – Overview of Investment Banking Organizational
Structure of an Investment Bank Investment Banking Division Client Coverage Bankers Capital Markets Group Equity Capital Markets Debt Capital Markets M&A Product Group Trading Division Fixed Income, Currencies
and Commodities (FICC) Equities Non-Client Related Trading and Investing
Principal Investing Proprietary Trading Asset Management Division
Co-Investments in Asset Management Division Funds Referenced Case Studies – Investment Banking
in 2008 (A): Rise and Fall of the Bear; Investment Banking in 2008 (B): A Brave New World Chapter 2 – Regulation of the Securities
Industry Introduction Section One: U.S. Regulations Early Investment
Banking The Growth of Investment Banking Limited Regulation The Securities
Act of 1933 The Registration Statement The Investment Prospectus New
Liabilities Gun-Jumping Rules The Glass-Steagall Act (formally, the Banking Act of 1933)
Separation of Private Banks into Deposit and Investment Banks Separation of Commercial and
Investment Banks Securities Act of 1934 Public Utility Holding Company Act Chandler Act Maloney Act Investment Company Act of 1940 Section
Two: Recent Development in Securities Regulations Gramm-Leach-Bliley Act Sarbanes-Oxley
Act Bear Stearns Collapse Section Three: Securities Regulations in Other Countries
Japan 1947 – 1992 1992 – 1998 1998 – Present United Kingdom Pre-1986 1986 – 1997 1997 – Present China Pre-1992 1992 – 1998 1998 – 2005 2005 – Present Chapter 3 – Financings Capital
Markets Financings Financing Considerations Financing Alternatives Debt
Financing Bonds Loans Private Placements Asset
Backed Securities Commercial Paper Equity Financing Initial
Public Offerings (IPOs) Follow-On Offerings Convertible Securities Rationale
for Issuing Convertible Bonds Convertible Bond Example Convertible Market
Fees to Bankers Distribution Alternatives Shelf Registration Statements "Green Shoe" Over-Allotment Option Referenced Case Studies – Freeport McMorRan: Financing an Acquisition Chapter 4 – Mergers & Acquisitions Strategic Rationale Synergies Credit Ratings and Acquisition Currency Regulatory Considerations Social and Constituent
Considerations Role of Investment Bankers Other M&A Participants Fairness
Opinion Acquisitions Merger Tender Offer Proxy
Contest Due Diligence and Documentation Breakup Fee Alternative Sale
Process Preemptive Targeted Solicitation Controlled Auction Public Auction Cross-Border Transactions Tax-Free Reorganizations Corporate Restructurings IPO Carve-Out Spin-Off Spit-Off Tracking Stock Valuation Comparable
Company Analysis Comparable Transaction Analysis Discounted Cash Flow Analysis Leverage Buyout Analysis Breakup Analysis Valuation Summary Takeover
Defenses Shareholder Rights Plan Other Defenses Risk Arbitrage Referenced Case Study – The Best Deal Gillette Could Get? Procter & Gamble's Acquisition of Gillette
Chapter 5 – Trading Client-Related Trading Pricing Securities Offerings Research Sales Equity Trading Prime Brokerage
Securities Lending Margin Financing Fixed Income, Currencies
and Commodities (FICC) Trading Interest Rate Products Credit Products Structured Credit Credit Default Swaps Bank Loans Commodities Currencies Proprietary Trading Risk Monitoring and Control Value-at-Risk (VaR) Referenced Case Studies – A Tale of Two Hedge Funds: Magnetar, Peloton, CDOs, and the
2008 Financial Crisis; Kmart, Sears, and ESL: How a Hedge Fund Became One of the World's Largest Retailers Chapter 6 – Asset
Management, Wealth Management and Research Asset Management Wealth Management
Hedge Fund Investments Private Equity Investments Research Paying for Research Conflicts of Interest Regulation FD
Chapter 7 – Credit Rating Agencies, Exchanges and Clearing and Settlement Credit Rating Agencies
Asset-Backed Securities and Criticism Against Credit Rating Agencies Monoline Insurers' Relationship
with Credit Agencies Credit Rating Advisory Services Provided by Investment Banks Exchanges
Specialists Futures Exchanges Over-the-Counter Market Clearing and Settlement Securities Settlement Derivatives Settlement Investment Banking Services Chapter 8 – International Banking Euromarkets Japan's Financial Market M&A in Japan Equity Financing in Japan Trading Securities in Japan China's Financial Market M&A in China Equity Financing in China Trading Securities in China International Investment
Banking Activity in China Emerging Financial Markets Bonds Syndicated
Loans Equity M&A Global IPO Market Brazil's
IPO Market Russia's IPO Market India's IPO Market China's IPO Market American Depository Receipt (ADR) Standardized International Financial Reporting International Investors Chapter 9 – Convertible Securities and Wall Street Innovation
Convertible Securities Hedge Funds and Delta Hedging Zero Coupon Bonds Mandatory Convertibles Wall Street Innovation Nikkei Put Warrants Accelerated Share Repurchase Program Chapter 10 – Investment Banking Career Opportunities and
Trends Investment Banking Division Analysts Associates Vice Presidents Managing Directors Trading and Principal Investments Division
Client-Related Trading Proprietary Trading Institutional Sales
Equity Sales Fixed-Income Sales Prime Brokerage Sales
Private Wealth Management Asset Management Research Principal Investments Other Investment Banking Functions Operations Finance
Investment Banking Trends Securitization Credit Crisis of 2007 – 2008 Bear Stearns Short-Term Financing by Investment Banks Structured Investment Vehicles Leverage at Investment Banks Capital Ratios New Power Brokers in the Capital
Markets Credit Default Swaps Bridge Loans Investment Banking Future Section Two: Hedge Funds and Private Equity Chapter 11 – Overview of Hedge Funds
Leverage Growth Composition of Investors Industry Concentration Performance 2008 Slowdown Market Liquidity and Efficiency
Financial Innovation Illiquid Investments Lock-Ups, Gates and Side Pockets Comparison with Private Equity Funds and Mutual Funds High Water Marks and Hurdle Rates Public Offerings Fund of Funds Referenced Case Study – A Tale of Two Hedge Funds:
Magnetar, Peloton, CDOs, and the 2008 Financial Crisis Chapter 12 – Hedge Fund Investment Strategies Equity-Based Strategies Equity Long/Short Non-Hedged Equity
Directional Strategies Macro Emerging Markets Arbitrage
Strategies Fixed Income-Based Arbitrage Convertible Arbitrage Relative
Value Arbitrage Event Driven Strategies Activist Merger Arbitrage Distressed Securities Summary Referenced Case Study – Kmart, Sears, and
ESL: How a Hedge Fund Became One of the World's Largest Retailers Chapter 13 – Shareholder Activism and Impact on Corporations
Shareholder-Centric vs. Director-Centric Governance Activist Hedge Fund Performance Activist Hedge Fund Accumulation Strategies Changing Rules that Favor Activists Daniel
Loeb and 13D Letters Lehman Brothers' Erin Callan vs. David Einhorn of Greenlight Capital Carl
Icahn vs. Yahoo CSX vs. TCI Bill Ackman vs. McDonald's, Wendy's, Ceridian, Target and MBIA Summary Referenced Case Studies – McDonald's, Wendy's, and Hedge Funds: Hamburger Hedging?; Porsche,
Volkswagen and CSX: Cars, Trains and Derivatives Chapter 14 – Risk, Regulation and Organizational Structure
Risk Incremental Risk Leverage Regulation Short Selling Transparency Risk Tolerance Systemic
Risk Bank Exposure to Hedge Funds Mitigating Systemic Risk Investor
Risks Regulation Alternative Regulatory Approaches Organizational
Structure Domicile Legal Entity Open-Ended Partnership
Referenced Case Study – Porsche, Volkswagen and CSX: Cars, Trains and Derivatives Chapter 15 – Hedge Fund Issues and Performance
2008 Summary Fund of Funds Absolute Return Benefits
Revisited Transparency Fees Taxes High Water Mark Searching for Returns Future Developments Merging of Functions Hedge Fund Performance Chapter 16 – Overview of Private Equity Characteristics
of a Private Equity Transaction Target Companies for Private Equity Transactions Private Equity
Transaction Participants Structure of a Private Equity Fund Capitalization of a Private Equity
Transaction Assets Under Management Private Equity Goes Public History Equity Bridge Loans Covenant-Lite Loans and PIK Toggles Club Transactions and
Stub Equity Teaming Up with Management Private Equity Investment in Public Equities (PIPEs) Leveraged Recapitalizations Secondary Market for Private Equity Fund of Funds Impact of Financial Services Meltdown on Private Equity Chapter 17 – LBO Financial Model
Determining Cash Flow Available for Debt Service Determining Financial Sponsor IRR Determining Purchase Price and Sale Price LBO Analysis Example Forecast Revenue,
Margins, D&A, CapEx, Working Capital, Interest Rate and Tax Rate Calculate Acquisition Multiples Determine Target's Capitalization after Acquisition Determine Cash Flow Available for Debt Service Calculate Credit Ratios Calculate Equity Value, IRR, and Multiple of Investment on Projected Exit
Date LBO Analysis Post Credit Crisis Referenced Case Study – The Toys "R" Us LBO
Chapter 18 – Private Equity Impact on Corporations Private Equity-Owned Companies: Management and Productivity Private Equity-Owned Company Failures Hawaiian Telecom Communications (HTC) Washington Mutual, Inc (WaMu) Scorecard During 2008 Private Equity Purchase Commitment
Failures BCE, Inc Huntsman Corporation Private Equity Portfolio
Companies Purchased During 2006-2007 TXU Energy (TXU) Equity Office Properties (EOP) Hospital Corporation of America (HCA) Harrah's Entertainment (Harrah's) Freescale
Semiconductor (Freescale) Univision Private Equity Value Proposition for Corporations Corporate Rationale for Completing Private Equity Transactions Alternative to an IPO Corporate Orphans Ignored Public Companies Operating or Financial Weakness Mandated Divestitures Private Equity as an Alternative Model of Corporate Governance Private Equity Influence on Companies Pressure on Corporate Performance Changing Capital
Structure Reduction in Public Market Capitalization Mergers and Acquisitions
Referenced Case Study ?Cerberus and the U.S. Auto Industry Chapter 19 – Organization, Compensation, Regulation and Limited
Partners Organizational Structure Closed End Funds Exits Compensation Preferred Returns Timing Issues Clawbacks Taxes Regulations Using Intermediaries Perception
and Reality Limited Partners Defaults Disclosure Fees Secondary Market FASB 157 Chapter 20 – Issues and
Opportunities PIPEs Equity Buyouts Loans M&A
Advisory Capital Markets Activity Hedge Fund and Real Estate Investments 2008
Losses Boom and Bust Cycles Annex Funds Limited Partner Pull-Backs Risk Factors Asian Private Equity Activities Profile of The Carlyle Group Strategic Alliances Private Equity IPOs Focus on Portfolio Management Comparison of Private Equity Firms Future Issues Affecting Private Equity
Section Three: Case Studies Investment Banking in 2008 (A): Rise and Fall of the Bear Bear
Stearns Long Term Capital Management The Credit Crisis Bear Stearns Asset
Management The Calm Before the Storm Run on the Bank Bear's Last Weekend Investment Banking in 2008 (B): A Brave New World The Aftermath of Bear Stearns Gramm-Leach-Bliley and the Fall of Glass-Steagall Lehman Brothers Merrill Lynch Goldman Sachs and Morgan Stanley Freeport-McMoRan: Financing an Acquisition Metals Heating Up Enter Freeport-McMoRan Role of the Investment Banks
Inside the Wall Outside the Wall Placing the Equity and Convertible Offerings Mandatory Convertible Preferred Shares FCX Post-Allocation The Best
Deal Gillette Could Get? Procter & Gamble's Acquisition of Gillette A Dream Deal Deal
Structure: An "All-Stock", 60/40, No-Collar Acquisition Valuation of the Deal Key Stakeholders:
Beantown, Wall Street, DC, and Main Street The Razor Boss of Beantown: James Kilts, Gillette CEO The Rainmakers: Investment Bankers and Power Brokers The Regulators: International, National, and Local The White Squire from Omaha: Warren Buffett, Gillette Investor Conclusion
A Tale of Two Hedge Funds: Magnetar, Peloton, CDOs, and the 2008 Financial Crisis What a Year What a Nightmare Magnetar's Killer Bet The 2007 – 2008 Financial Crisis The CDO Market Rating Agencies Correlation CDO Market
Evolution Bank Debt and the Cov-Lite Craze Kmart, Sears, and ESL: How a Hedge Fund Became
One of the World's Largest Retailers The Unusual Weekend Flash Forward: November 2004
Case Focus The Rise and Fall of Kmart Bankruptcy and Inefficient
Financial Markets Financial Buyers vs. Strategic Buyers Private Equity Hedge
Funds ESL: The Hedge Fund That Could Not Be Categorized 2002 – 2003 Decision: Should ESL Seek
to Gain Control of Kmart during Bankruptcy? Lampert's Kmart Play November 2004 Decision: Should
Kmart (under ESL's Control) Acquire Sears? McDonald's, Wendy's, and Hedge Funds: Hamburger Hedging? Hedge Fund
Activism and Impact on Corporate Governance Growing Hedge Fund Activism A Tale of Two
Activists: Carl Icahn and William Ackman Pershing Square's Initial Involvement: Wendy's and McDonald's
Wendy's McDonald's McDonald's Management and Franchisees Respond Rating Agency Concern Unlocking McDonald's Real Estate Value Aftermath of McDonald's
Rejection The Truce Retrospective Porsche, Volkswagen and CSX: Cars,
Trains and Derivatives Using Derivatives to Obtain Control Positions Volkswagen Equity
Derivatives CSX Equity Derivatives CSX Collides with TCI and 3G Background TCI and 3G Take a Position Porsche and Volkswagen: Brothers Reunited
Cash-Settled Options Stealth by Swaps Dilemma
The Toys "R" Us LBO Case Focus Emergence of Club Deal in a Maturing Industry Dividends and Fees Paid to Private Equity Firms U.S. Retail Toy Industry in 2005 European Retail Toy Industry Infant, Toddler, and Preschool Market Overview of Toys "R"
Us Toys "R" Us – United States Toys "R" Us – International Babies
"R" US Toysrus.com Challenging Times for Toys "R" Us Toys "R" Us
Strategic Review and Sale The Toys "R" Us Club KKR Bain Capital Vornado Realty Trust The Assignment Cerberus and the U.S. Auto Industry
Introduction "What's Good for GM?" GM a Power GM
Hard Times Effect on Suppliers CEO Wagoner's Tough Task Remaking Company
Cerberus Capital Management to the Rescue?Maybe Cerberus – New Beast of the Investment Community The Deal and Its Details Roadblocks and Hurdles GM's Supplier Relationships Cerberus Builds and Even Bigger Auto Stage The Dream Becomes a Nightmare
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