Private Equity Players are considered the smartest Investors of all.Why? The simple reason for this is, as Mr.Warren Buffet rightly says "Be greedy when others are fearful".Private Equity Players rein in on negative market sentiments to invest in companies which are good on fundamentals but become undervalued due to market downturn.
But,a market downturn like the one we are in today,attributed to the US mortgage crisis and the total economy turnaround has even made the Private Equity Players to tread with caution.The falling of the Financial Biggies like the Lehman's has suddenly bought the shady picture of the big corporations.The fundamentals of the companies on paper are no more a proof enough of their efiicient operations and a sound business model.And Rightly So,
Hell,If a Lehman Brothers,which survived the World War can go bust,anyone can.
So,does it mean that the Private Equity guys are sitting idle and waiting for things to turn around.No,they haven't.They are the "Kings Of Tragedy".But,with these testing times The PE guys have come to realise that no matter how much research they put into place,they need a contigency plan to insure their Investments.
Here;s where they have started utilising the PARACHUTE CLAUSE ,

 
Unfortunately WikiPedia does not define the exact  term but is very similar to the GOLDEN PARACHUTE, which means

" is an agreement between a company and an employee (usually upper executive) specifying that the employee will receive certain significant benefits if employment is terminated. Sometimes, certain conditions, typically a change in company ownership, must be met, but often the cause of termination is unspecified. These benefits may include severance pay, cash bonuses, stock options, or other benefits. They are designed to reduce perverse incentives."

Parachute Clause in the Private Equity scene transcends as an life insurance cover which means that if the underlying company goes kaput,the investors interest will be given priority before the Promoter.So,basically a Private Equity Player by including the Parachute Clause in their contracts is ensuring that his Investment in a company is protected even if the company goes bust.

A clear example of some of The Private Equity Deals with Parachute Clause can be seen from the Indian Real Estate Space,

1.Lehman Brothers PE arm invested 100 million $ in Unitech's Housing Project.However,it is irnoic that this time the Investor went down:-)
2.Morgan Stanley invested millions of Dollars in DLF's middle class housing projects in Indian Metros.

Whats important here is that , real estate players being the famous hunting grounds for  Private Equity players are still being treaded with caution and insured with the help of Parachute Clauses.

There have been many proponents and oponents for the use of Parachute Clause,and the debate is far from over.
What i would like to see is that the retail investor having the option to use the Parachute Clause like the Private Equity Players.Atleast,if the value of my Investments goes down,i will atleast have something to fall upon.
Take for Instance,

• I invested in a FMCG goods companies,how good it will be to have the company send me free cosmetics,biscuit packets,chips etc.Atleast,i will not swear on the company's management
• If i invest in a Real Estate company,they give me a free stay in any of their housing apartments with the duration proportional to the money i invested.
• I can probably go on with all the sectors except may be the ones involved in heavy Engineering and likes.I dont know what can they offer me.let me know if you cant think of more.

I know this sounds foolhardy and it is very impractical.But,in testing times like these where markets have become so prone to negative cues and totally insulated from Good news, I sure would settle for some return on my equity investment,which ever it comes home:-)

What do you think?Would you want to have a Parachute Clause for your investments too..