Hitting The Target Optimizing A Private Equity Portfolio With Partners Group Case Solution

Since, PE investment of Future Plan started to gain traction on account of the turbulence experienced by the international market which came on the back of the financial crisis of 2008. The mortgage crisis hit the global markets severely and companies from several industries filed for bankruptcy. The investment made by the closed-end funds in PE funds which hold private companies influenced by the debt crisis. Future has invested approximately Euro 70 million in closed-end FOFs and direct PE funds during 2006-7 while raising its target allocation in PE to 3%. A considerable part of the investment was affected by the global crisis which caused some PE holdings of Future Plan’s investment to go bankrupt. As a result, the investment of Future Plan took a hit, and the pace of invested capital in PE got further slower (it was already underinvested). 

Moreover, the private infrastructure asset class contribute significantly to the fall out of PE holdings of Future Plan since it was a hard hit on account of the mortgage crisis. The direct PE fund in which future had invested, experienced many tractions to its investment in infrastructure asset thereby influencing the overall PE portfolio of Future plan badly. Despite of the unsatisfactory performance of the funds and privately held companies of direct PE funds, the Future Plan overall return was also deteriorated on account of multiple layers of fees charges by the closed-end FOFs and direct PE funds. In this regard, the PE programme of Future Plan could not show expected performance. 

2. How did Future Plan’s IC adjust the PE programme’s mandate following the major strategy review, and what did they hope to achieve with these changes? 

The Future plan decided not to abandon and sell the PE investment rather they intended to build more flexibility and add more improvement in execution to their existing PE investments. In this regard, they recognized that their investment in PE was too narrow whereby they invest in primary PE through closed-end FOFs therefore they decided to broaden their outreach and mandated their external managers to grab any potential opportunity which they deem fit for creating desired return for the fund. The company adjusted its strategy to look for previously overlooked strategic tools of investment in PE including the secondary and direct investments. This strategic adjustment would allow Future Plan to achieve various benefits. These benefits include access to funds with more mature portfolios increasing the pace of NAV development through the purchase of LP interest in existing PE funds in the secondary market thereby providing Future Plan with higher visibility than a private fund commitment. The private fund commitment gives lesser discretion to the Future Plan manager to control the flow of capital towards a specific asset class as opposed to the direct and secondary investment.