Canadian Securities Course Volume One

CAPITAL – Chapter One

 A fancy word for money

 Characteristics: mobile, sensitive, scarce

 Direct investing – when investments are made in “hard” assets…

like buildings, machinery, equipment

 Indirect investing – purchases of securities issued (which means

sold) by governments or corporations

 This course is all about indirect investing

SOURCES AND USERS OF CAPITAL

 Individuals – domestic and foreign

 Businesses – stocks and bonds

 Government – Federal, Provincial & Municipal… budget surpluses

& deficits

MAJOR INSTRUMENTS

 Debt or Fixed Income… Bonds versus Debentures

 Equities – Common and Preferred Shares

 Investment Funds – Mutual Funds

 Derivative Products – Options & Futures and Forwards

 Others – include linked notes and ETFs

PRIVATE EQUITY

 The financing of firms unwilling or unable to find capital using

public means. The asset class includes both debt and equity; longterm returns for private equity typically exceed other asset classes

because private equity tends to be riskier

 There are several means by which private equity investors finance

firms:

1. Leveraged buyout – the acquisition of companies financed

with debt and equity

2. Growth capital – financing expanding firms

3. Turnaround – out of favour industries that need operating

restructuring

4. Early stage venture capital – industries/companies in the

infancy stages of development

5. Late stage venture capital – more established, rapidly

growing firms that are still not profitable

6. Distressed debt – buying bonds below par due to financial

troubles at the firm

 Private equity investors are typically: public pension plans, private

pension plans, endowments, foundations, and wealthy individuals

and families

 The role of private equity in a portfolio context is to provide return

enhancement and diversification benefits

FINANCIAL MARKETS

 Primary market… money flows from investors to issuing

company or issuing government unit

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