4th august.2015

Got to the office by 8, and on getting to my table, i switched on my system. Then I quickly browsed for foreign exchange news because I wanted to order something from USA.  I saw it was dropping rapidly in the foreign exchange market, as a result of a restriction by the CBN that banks should not accept deposits to domiciliary accounts.
To me, this is a failed attempt already because the value is based on the market forces of demand and supply. How much demand there is in relation to supply of a currency will determine that currency’s value in relation to another currency. Nigeria is mainly import dependent with little indigenous production which may entice foreigners to demand the naira; the above strategy would only cause a strain on the country’s foreign reserves in a bid to keep the rates stable.

In the middle of this, I was summoned and told to help with the MPR report which is used for performance evaluation. They were so many things to do. I did more than 100 mpr reports, but thankfully there was a pre-made format so I just had to manipulate it. My back was killing me, and so were my fingers. I had to stand up and stretch often.

Also I had to collect my monthly clearance letter from the HR. The clearance letter is needed by the Nysc secretariat to certify that you have worked for the month at your place of primary assignment, and that you are cleared to receive your allowance for the month.

Finally done!. I left by 6:20. Got to the university environs and called my friend who had been reading for her professional exams near the school. I wanted to start coming there to read too.  She led me to the place and we mostly gisted and I read a little. This was on the investment process

 

The Investment process in Private Equity

The key performance divers for private equity are:

Fund manager selection: This as the name implies is the selection of the person or organization that would be managing the fund. In private equity, unlike public equity markets, the difference in performance between the top quartile and bottom quartile managers is significantly larger. So it is of utmost important to select the top performing managers.

Portfolio design: According to modern portfolio theory, investors who do not hold diversified portfolios assume greater levels of risk without proportionate increases in expected return. This implies that a diversified portfolio is better than one which is not. In private equity markets, diversifying not only means eliminating variance but also means reducing the desirable positive skew or extreme positive returns.

Commitment Management: In private equity, the management of commitment is very important. There is a need to undertake high earning projects to increase the rate of return. There is a need to utilize capital to a maximum effect and not under commit it so that it will not end up earning public market or treasury returns.

 

Investment Process

The primary steps in the investment process are:

• Setting the portfolio objectives: This is an important process, the fund manager informs potential investors of the objectives which include setting the target return, identifying profitable market trends, structuring fund so that the fund manager receives the proper incentives. Here there is a need to align the interests of the fund manager with those of the investors. Private equity performance is generally measure with the internal rate of return, which is time and capital weighted. The internal rate of return is the percentage whereby discounted net present value amount of future cash flow rates of return= Cost of capital= 0. Naïve allocation is when managers allocate equally among several funds with a maximum portfolio exposure of 5% to 10%. Under allocation will not create a large enough portfolio impact. Over allocation will result to a poorly diversified portfolio and increase the risk.

• Portfolio Design: This specifies how the portfolio would be constructed.
• Managing Liquidity: Funds should analyze projected cash flows and make sure it aligns with the liquidity needs of the investors.
• Fund selection: It is of great importance to select fund managers that perform in the top quartile because of the larger disparity between the top and the bottom quartile.
• Continuous Monitoring: Investors should Monitor their portfolio

 

Recommended Reading

Alternative Investments: CAIA Level I (Wiley Finance)