Comprehensive Advisory Services Delivered by Deeply Experienced Professionals
We provide a full range of investment advisory services across sub-strategies and geographies of alternative assets relating to partnership investments, secondary investments, co-investments and direct investments. In concert with our clients, we assist in developing sub-asset allocations, commitment pacing, cash flow forecasting and valuation analysis. We also provide comprehensive investment sourcing, screening and due diligence assistance in addition to portfolio assistance.
INVESTMENT STRATEGY DEVELOPMENT AND REVIEW
We believe that alternative investment strategies and approaches should be employed in a manner that can succeed by focusing on investments that can be effective in the current environment as well as through changing economic cycles. Portfolios should be structured and allocated in a way that provides the flexibility to tactically take advantage of opportunistic investments, while maintaining an appropriate overall balance within the portfolio.
The dynamics of most alternative investments make it difficult to make large directional changes to a portfolio on short notice. As a result, proper pacing and co-investments along with strategic use of the secondary market will provide increased flexibility to invest in a counter-cyclical manner which we believe will produce stronger performance.
Our approach combines both a top-down view of our client's objectives, sub-asset allocation and tactical market opportunities with a detailed, bottom-up analysis of the best individual managers, co-investment opportunities and other opportunities within a particular strategy.
On an annual (or more frequent basis depending on our clients' preferences), we evaluate the alternative investment strategy and provide a formal strategy update and review to staff and/or the boards of our clients.
SUB-ASSET ALLOCATION, COMMITMENT PACING AND CASH FLOW MODELING
Our analysis of a client's portfolio is based on our historical perspective on private equity, for which we have developed a proprietary strategic sub-asset allocation and commitment pacing model. This comprehensive portfolio model is used to assist our clients in estimating the cash flow requirements of their programs, projecting the performance of their portfolios, determining annual commitment levels necessary to achieve their target allocations and analyzing the impact of changes to their portfolios, including secondary sales. The key functionality of the model includes:
- Unique cash flow patterns developed by strategy, sector, and sub-sector
- Over 2,500 partnerships used as a basis to model portfolio impacts
- Performance assumptions modified by strategy and by partnership
- Projected cash flows updated automatically for actual results
Incorporating this detailed historical information allows us to more accurately predict the potential range of outcomes so that our clients can make more informed decisions to more effectively manage their portfolio on a real-time basis.
As a result of our analysis, we will recommend modifications to the portfolio based on both current tactical objectives and longer-term strategic considerations with respect to specific strategies and geographies that we believe are well positioned to generate top quartile returns within an overall framework of a diversified private equity portfolio.
INVESTMENT SOURCING AND SCREENING
We have developed a comprehensive and customized process for sourcing and screening potential new partnership investments, co-investments and secondary opportunities. Attributes that are tracked on prospective investments are dependent upon the type of investment and include the information necessary to make an informed decision on whether to proceed with additional diligence. We track our clients' interest level, relative to their specific strategy, for each opportunity as it progresses through our investment screening process.
LPCA identifies potential opportunities through a variety of sources, including LPCA's extensive network and database, existing client relationships, managers, agents and the media. Our clients are sophisticated, global private equity investors and we source opportunities on a global basis, covering all sub-strategies and developed and emerging markets, including the Americas, Europe and Asia.
We also maintain a broad-market forward calendar of partnerships coming to market and a more focused forward calendar for each sub-asset class. This approach enables us to track a broad number of partnerships in the market, yet stay focused on a subset of managers we believe are the strongest in their respective investment strategies and geographies. This overview of top managers is updated on an annual basis through a detailed assessment of significant geographies and strategies, including Europe, Asia, small buyout, secondaries and turnaround / restructuring and distressed managers and is shared with our clients.
Once a partnership investment opportunity has progressed into due diligence, we begin a comprehensive analysis of the organization, strategy, team, performance and alignment of interests with a qualitative and quantitative assessment.
The alternative investment strategies we cover include:
- Venture Capital
- Growth and Expansion Capital
- Leveraged Buyouts (Small, Middle Market and Large)
- Non Control Distressed
- Turnaround / Control Distressed / Restructuring
- Mezzanine Capital
- Fund of Funds and Secondary Funds
- Real Estate
LPCA's senior professionals have deep backgrounds in performing investment due diligence for financial and strategic buyers and we leverage our competitive position as a leading alternative asset advisor to capitalize on both information and relationship advantages to assist institutional investors with evaluating co-investments. Our co-investment due diligence services are focused on providing limited partners with a greater understanding of the scope of the general partner's due diligence, an ability to flex the assumptions of the manager, and an assessment of whether the additional exposure beyond the partnership's investment in the portfolio company or vehicle is prudent.
With a wide network of general partner contacts, we also provide input on potential deal flow from those general partners so that you can begin building relationships with additional top performing managers.
LPCA utilizes its direct and partnership investment expertise, along with its extensive database and network of managers and intermediaries, to gain an understanding of potential buy-side or sell side opportunities for our clients. We are able to assist our clients in providing strategic solutions that address long-term portfolio management goals, rather than providing temporary fixes that address short-term goals.
LPCA's analysis on secondary opportunities begins with a detailed evaluation of the individual portfolio companies focused on their current and expected future performance, time to exit and current carrying value. We then overlay the timing and return expectations for deployment of any uncalled capital in the partnership and the terms of the partnership's agreement (fee structure and distribution waterfall).
Once the detailed portfolio company analysis is complete, LPCA utilizes that information to develop a discounted cash flow model to arrive at a potential value of the portfolio and then adjusts the potential price based on a number of factors, including the condition and expectations of the seller, strategic value of the asset and other factors, as necessary.
Opportunities in the secondary market should be explored for portfolio management reasons as well as maximizing returns.
Direct & Strategic Investments
We have extensive experience evaluating and recommending strategic investments to institutional investors in private equity, real estate and hedge fund firms. We have worked as the lead advisor on a number of large actual and contemplated transactions, including:
- $275 million investment into a sector-focused private equity firm
- $500 million investment into a global multi-platform private equity firm
- $200 million investment into a global multi-platform private equity firm
- $1 billion investment into a hedge fund management company
- $100+ million investment into a global real estate investment firm
- $100+ million investment into an urban real estate and infrastructure investment firm
Additionally, we have worked through numerous transactions post-investment to help our clients better understand the structure of the deal and economic flows, evaluate the exercise of put or call options, execute additional funding requirements or evaluate restructuring opportunities.
Our investment monitoring approach is customized to our client needs. The scope of our investment monitoring services can be broad and typically includes the following:
- Review and assessment of proposed partnership amendments, waivers and consents
- Ongoing monitoring and review of general partner and underlying portfolio companies in news and industry bulletins, which is summarized in bi-weekly Activity Reports
- Attendance at annual, advisory board or other partnership meetings (via telephone, video conference or in person)
Acting as an extension of staff as opposed to mere data conveyers, this aggregated portfolio knowledge is either reviewed during ad-hoc discussions with staff, or through key scheduled deliverables, including:
- Bi-Weekly Activity Reports
- Monthly Portfolio Updates
- Quarterly Monitoring Reports
- Quarterly Performance Reports
- Quarterly Memorandums
- Quarterly Portfolio Reviews
On a quarterly basis, we assess each partnership that we monitor on behalf of our clients based on our scoring system, which objectively presents the past, present and future potential performance of an investment. To rate partnerships and effectively and efficiently identify potential problems, we utilize a simple, tiered "stoplight" system coupled with overall performance and trend analysis.
PARTNERSHIP ANALYSIS AND WORKOUTS
We provide our clients with in-depth analyses on problematic relationships and have assisted in the restructuring of general partner relationships where appropriate. This deep analysis is focused on areas of the partnership agreement that are prone to inconsistent application or errors. These situations primarily relate to improper expense/fee allocations, erroneous distribution mechanics, improper clawback calculations, improper tax consideration in profit distribution to a general partner and other cash flow events. In certain situations, the removal of a general partner or other type of workout is necessary to maximize value for the limited partners.
PROCESS DEVELOPMENT AND IMPROVEMENT
Given the complexities and challenges inherent in many clients existing workflows and communication processes, we have developed an expertise in supporting the development and implementation of operational processes and / or process improvement. Our efforts emphasize margin improvement and the enhancement of the quality and productivity in key business processes that assist clients in effectively managing alternative investment portfolios.
LEGACY PORTFOLIO MANAGEMENT
We provide clients with an efficient and effective legacy investment management program as an overlay to our core portfolio management and reporting services. Legacy investments are often present in the portfolios of institutional investors and can be difficult to manage. These assets can be time-intensive to monitor and tend to have complex end-of-life economics, requiring intensive analysis to verify and account for the proper flow of cash to partners, including waterfall analysis, carry analysis, management fee step downs, monitoring/transaction fee allocations, reserves appropriations and recycling.
LPCA is currently responsible for the management and administration of several legacy portfolios, which include non-core partnerships that are managed toward liquidation. The client maintains fiduciary responsibility for the individual partnerships, while LPCA undertakes full administrative, performance and monitoring activities of the partnerships. In addition to standard monitoring and performance responsibilities, LPCA structures, recommends and implements prudent liquidation strategies for the underlying holdings as part of our legacy portfolio management services.
Training and Education
LPCA performs research and training on behalf of clients and for industry-related discussions to aid limited partners in managing the risk, exposure and direction of their private equity programs. This research involves investment professionals across the firm and utilizes our broad experience and detailed market information extracted from our performance-reporting database, as well as numerous external industry resources. We publish research reports for our clients and provide training to keep our clients up-to-date in a dynamic industry. Following are some of the topics we cover:
- Capital structures
- Due diligence best practices
- Private Equity valuation and methodologies
- Benchmarking Private Equity
- Co-investment strategies and process
- Understanding Private Equity partnership financial statements
- Investment Overviews: Small buyout, European and Asian private equity
- Best practices for efficient workflow
- Validation of cash flows
- Partnership distribution mechanics and clawbacks
- Reporting and performance measurement best practices
- Commitment modeling