Private Equity investment

CFA Level II Alternative Investments
#1

Please can someone help with the following:

  1. Which of the following best describes the competitive environment risk of investing in private equity?
    A. The competition for finding reasonably priced private equity investments may be high.
    B. The competition for funds from private equity investors has increased as financial
    markets have fallen in activity.
    C. The competitive environment in the product markets for portfolio companies has
    increased due to the economic slowdown

The answer is A, but why is B incorrect?

#2

B is incorrect because the 2nd part of the statement is incorrect. Financial markets have not fallen in activity. But A is true because Alt investing and private equity in particular have increased tremendously so there can be a lot of dollars chasing a limited number of deals and hence there aren’t nearly as many under-priced assets as there may have been previously when PE was not as big as it is now.

1 Like
#3

This :+1:

#4

Thanks for your response @Marlowe !!
For B you meant that in the questions it implied when financial markets have increased in activity then the competition in investing in PE will increase?