Capital Strucutre & Cash Managememt
The two ways a company raises capital are
What are Debt and Equity
A few advantage of private credit are
1) Dont have to mark to market
2) Higher returns
3) Longer lockup
Private equity includes various types of equity investments such as
1) Venture Capital
2) Real Estate
3) Buyout
4) Growth Equity
One advantage of investing in Real Estate is that Real Estate takes characteristics from
Both debt & equity
Rates and yields move this way relative to each other
inversely
Cash is considered by many as a safe asset. Mr. Bradley on the other hand says cash is only safe when measured against
Cash
1) Credit Risk
2) Liquidity Risk
Relative to public compaines, private companies tend to have differing characteristics. Some of these are
1) Smaller
2) Privately owned
3) Dont have to be profitable
VALUING REAL ESTATE is DIFFERENT FROM VALUING STOCKS, BONDS and cash because
it isnt
Total return is comprised of these two components
Income + Capital Apprecaiation
The cost of capital each buisness differs based on risk factors. Under normal cirmumstances, riskier businesses would have this type of cost structure relative to safer businesses
Riskier businesses have more expensive capital strucutres
Compared to businesses in the public fixed income market, companies that issue debt in the private credit market tend to have this characteristic
Tend to be riskier
Private Equity firms tend to have this type of control over the businesses they own
Majority. They control decision making
The riskiest part of the market in real estate right now is
Commercial Real Estate - specifically data centers and office
The yield curve is
A line that plots yields (interset rates) of bonds of equal quality but different maturity
The capital stack has many traches - the middle one is called this
Mezzanine
Some types of private credit are
1) Direct Lending
2) Asset based lending
3) Structrured Credit
The typical holding period for companies held by private equity is
3-5 years
The king in real estate investing is
cash flow
Short term interst rates are set by
The Federal Reserve
Company leaders have many things to consider when determining the capital structure. Some of these are
1) Current Make-up
2) How much equity has already been issued
3) Current level of interest rates
4) Uses of capital
The private credit industry was started after the GFC as a result of this
Banks tightening lending standards and not lending to riskier and smaller companies
Relative to public equity the largest risks to private equity are
1) Liquidity
2 Financial Stability
THREE MAJOR FACTORS THAT DRIVE COMMERCIAL AND RESIDENTIAL REAL ESTATE PRICES
1) Inventory
2) Interest Rates
3) Sentiment
Long-term interst rates are made up of
short rates set by the fed + inflation expectation