AssetMetrix Private Equity Portfolio Planner for LPs
- Christian Tausch
- 11.03.2024
- 4 min read
- Christian Tausch
- 11.03.2024
- 4 min read
Achieving and maintaining substantial allocations to Private Equity (PE) while keeping them at the desired level through customized commitment strategies is a complex endeavor. Institutional investors must navigate irrevocable commitments, uncertainties in cash flow, and illiquidity when making new commitments to grow or maintain their portfolio exposure to private capital funds. When considering new fund commitments, Limited Partners (LPs) are confronted with a vast array of possible allocation scenarios which cannot be processed by simplistic heuristics. Consequently, any manual management, if attempted, becomes time-consuming and prone to errors, always carrying the risk of consistently missing allocation targets.
Commitments made to closed-end funds are typically immutable, with the fund’s management having exclusive control over when and how much capital is called from investors. These capital calls cannot be perfectly predicted in advance, resulting in committed capital that remains uninvested, awaiting the fund’s calls. In most cases, the entirety of committed capital will not be fully deployed by the conclusion of the fund’s lifespan. Consequently, only a portion, typically between 55% and 70%, of the fund’s commitments will be effectively invested in private equity.
Investors who lack adequate future commitment planning are susceptible to encountering severe liquidity issues when pursuing an over-commitment strategy or, conversely, consistently under-committing to specific fund segments. For these reasons, PE fund investors require data-driven software solutions that can generate reliable, robust, and trustworthy commitment and recommitment strategies.
The foundation of our Portfolio Planner for private capital funds lies in our well-established cash flow forecasting model. This sophisticated and fully probabilistic forecasting engine has recently undergone thorough re-estimation and extensive back-testing to ensure the highest level of model precision. These precise predictions of future portfolio cash flows and net asset values enable effective planning and management of forthcoming fund commitments. Our Portfolio Planner model aids Limited Partners (LPs) in addressing the following questions:
What are the optimal commitment amounts for LPs to achieve their allocation targets?
When can LPs anticipate the deployment of their commitments?
When can LPs expect capital redistribution to occur?
How can LPs maintain their target allocations through appropriate recommitment strategies?
Figure 1: Assess the impact of future fund commitments on your private capital portfolio.
Our PE portfolio planning software sets the industry standard by addressing common flaws observed in competing solutions. Here’s how our approach differs:
Probabilistic Modeling: Our model embraces probabilistic forecasting, recognizing the inherent riskiness associated with PE cash flows.
Empirical Validation: We base our forecast model on empirical cash flow data, ensuring its accuracy and reliability.
Macro-Economic Sensitivity: Our model estimates future fund performance, taking into account the prevailing macroeconomic conditions.
Comprehensive Coverage: Our model naturally incorporates both initial fund commitments and the recommitment of redistributed capital.
Correct Starting Point: We initiate our calculations from the current Net Asset Value (NAV) and cash flows of all private capital funds in the portfolio, as opposed to approaches like the one presented by Takahashi Alexander in 2002.
Diverse Fund Segments: Our model doesn’t just differentiate between Buyout and Venture Capital funds; it encompasses a wide range of common regions and fund segments, including Private Debt, Real Estate, Infrastructure, Natural Resources, Fund of Funds, Secondaries, and more.
Figure 2: Easily overwrite future cash flow projections, using your own assumptions.
Our interactive commitment pacing software offers several advantages to potential users:
Effortless Sales Process and Rapid Client Onboarding: We provide a straightforward sales process and swift client onboarding.
Seamless Integration of Portfolio Data: Our software seamlessly integrates the complete cash flow and Net Asset Value (NAV) history of your existing Private Equity portfolios.
Intuitive Planning Start and Navigation: Getting started with the planning process is hassle-free, with an intuitive navigation system.
Support for Complex Structures: Our software offers out-of-the-box support for intricate portfolio and investor structures.
Comprehensive Cash Flow Visualization:You can visualize all cash flow and NAV projections related to both your existing and newly planned portfolios.
Downloadable Planning Results: Conveniently download all portfolio planning results as Excel files.
Multiple Commitment Plans: Save different commitment plans for the same portfolio to explore various scenarios.
Manual Cash Flow Adjustments: Make manual adjustments to cash flow forecasts based on your expertise.
Access to Leading Analytics Models: Benefit from access to industry-leading and continually updated analytics models.
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What to give the next step to a comprehensive Portfolio Planner? Contact our team to discover the best way to solve your analytics challenges!