Analyzing Your Portfolio with eVestment Private Markets
by Graeme Faulds, Director of Product – eVestment Private Markets
The Performance Analytics functionality of eVestment Private Markets originally set out to help institutional investors streamline and enhance their quantitative due diligence process. While this remains as the primary use, a growing proportion of our clients have also found the powerful analytics capabilities of the tool beneficial in the monitoring and analysis of their own portfolios.
This post answers some of the most frequently asked questions about how to leverage eVestment Private Markets analytics as a portfolio monitoring tool for limited partners.
To start, I should clarify the term portfolio monitoring. I do not mean the accounting and administration elements of portfolio monitoring, but instead the analysis and reporting of exposure, risk and performance across the portfolio and subsets thereof.
The Changing Structure of LP Portfolios
There has been a marked increase in the number of LPs who in addition to making primary investments also make direct or co-investments and secondary investments. As such, portfolios are becoming more complex and difficult to measure with multiple different exposures to specific fund managers and deals. Given the nature of commitments and subsequent drawdown and distribution of capital, this exposure is constantly changing over time.
In addition to measuring exposure across managers, LPs need to be able to answer questions about their exposure across sectors, geographies and deal type, know how their co-investment portfolio stacks up against their fund picks, and how the total portfolio has performed against the public markets.
While complex, these are questions eVestment Private Markets can help LPs answer. The following sections will cover how to use the platform to analyze the following:
- Cross Strategy Exposure
- Co-Investment Performance
- Portfolio Alpha
How to analyze your cross strategy exposure
eVestment Private Markets’ dedicated Fund of Funds analytics functionality expands the functionality to enable any investor to upload, and analyze, their investments classified into funds, co-investments, direct deals, secondaries or any other sub-strategy they desire.
Figure 1. Analyzing by LP Investment Strategy
Performance and Portfolio Composition
With the investment strategies uploaded, investors can analyze their cross-strategy exposure using a range of customizable widgets and dynamic filtering. Specific widgets such as the “Type” widget, “Deals” widget or even the “Matrix tab” enable investors to view their portfolio by performance (e.g. IRR, TVPI) or composition (e.g. Percentage Invested, Number of Deals).
Figure 2. Analysis of Portfolio Exposure and Composition
Investors that want to gain a more granular view of exposure can use the Matrix Tab to do so: an intelligent, configurable data table. In addition to tracking amounts Committed and currently Invested by sub-strategy and fund manager, investors can leverage specific exposure calculations such as Net Exposure, (outstanding commitment plus net invested after distributions) and Potential Exposure (outstanding commitment plus valuation) that can also be calculated across the portfolio.
Being able to track a variety of different exposures across sub-strategy and fund manager helps identify hidden risks within your portfolio, which managers you should be keeping particularly close to, how you may want to diversify away exposure to certain managers or strategies with future investments.
Figure 3. Measuring Portfolio Exposure
How to analyze your co-investments as a fund
Analyzing and Comparing Past Performance
Direct or co-investments have picked up momentum as key strategies within investors’ portfolios. By their very nature co-investments tend to be alongside a variety of managers and therefore funds. An interesting question to ask is: how have your direct investments performed as a “fund” versus your fund commitments. While there will likely be preferential economics, it’s a useful exercise to evaluate the effectiveness of the strategy and understand if the perceived benefits are translating to tangible results. It’s also interesting to see how your stock selection compares to third party fund managers: are you a top quartile manager within your own portfolio?
eVestment Private Markets features such as comparison mode and dynamic filtering, allow you to quickly and easily analyze your direct and co-investments as a stand-alone portfolio or “fund” alongside the rest of your portfolio. It is also valuable to look at exposure across sector, industry and geography using the 23 customizable widgets that come as standard.
Assessing Impacts on Future Performance
An important aspect of analyzing your co-investments as a “fund” is to assess its defensiveness against macro-economic or geo-political events. This is particularly timely given the current record breaking bull market. One feature of eVestment Private Markets that our clients are using to do this is the “What-if” portfolio modelling module, whereby they can model out the predicted future performance of co-investments both individually and as a fund.
Figure 4. Portfolio Modeling
Understanding the Influence of Time and Deal Size
Many LPs have been operating a direct or co-investment program for many years, far longer than the average life of a fund, and so the timing of investments can have a significant impact on performance. eVestment Private Markets enables investors to strip out this impact in two ways: collating co/direct investments into a series of funds over time or using Zero Based IRR calculations to better assess the true performance of the program.
Similarly, the size of direct/co-investments will likely vary considerably. Using eVestment Private Markets Neutrally Weighted IRR calculations enables investors to determine if their stock selection abilities (i.e. the amount invested in each deal) contribute or detract from the overall performance.
How to analyze your portfolio performance versus listed markets
One of the most common reasons investors analyze their own portfolio is to determine if it has outperformed a prescribed listed benchmark. This is not a new practice by any means – Public Market Equivalent (PME) analysis has always been done, but how it is done has become ever more complex in an effort to better identify outperformance.
Using eVestment Private Markets offers investors a sophisticated, configurable, yet intuitive, tool to calculate PME against their portfolio. Investors can select their preferred calculation methodology and indices to compare against, including custom blends of indices.
Figure 5. Portfolio Public Market Equivalent Analysis
Interested in learning more about how to streamline due diligence and enhance portfolio monitoring capabilities with eVestment Private Markets? Request a personalised demo to speak with one of our representatives today.
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