Private equity is an investment where you acquire a stake (minority or majority interest) in the capital of small, medium, or large companies that are not listed on the stock exchange. Such investments are made primarily through private equity funds that raise capital from numerous investors (individuals and institutions). The search for yield and the influx of liquidity is leading to a sharp increase in assets under management (AUM) for these funds in Belgium and internationally. A recent UBS study (UBS Global Family Office Report 2021) shows that American and European family offices currently reserve 15 to 20% of their assets for this investment. They are thus following the example of large U.S. endowment funds (endowment funds) such as Yale University's endowment fund, which invests a significant portion of its assets in illiquid assets. An increasing number of investors are interested in this asset class and, with a view to broader diversification, are committing to different funds and strategies (venture capital, buyout, growth, secondary, etc.).
Interest in private debt is also growing. Still relatively unknown in Belgium, this market has nevertheless been growing significantly since the financial crisis of 2007-08. When banks were under pressure from regulators to clean up their balance sheets and boost their equity, they were forced to put lending to medium-sized companies on hold. Immediately, new credit players jumped on the bandwagon: private debt funds. They raise money from private or institutional investors. Then they lend it to small and medium-sized funds or companies that either do not have a credit rating or, due to the limited loan size, cannot resort to the traditional capital market. These private debt funds are therefore situated between conventional bank loans (for amounts up to 25 million euros) and the public bond market (listed bonds issued by large companies for larger amounts).
Follow-up on investments
Apart from the terminology and abbreviations (such as IRR, TVPI, DPI, etc.) that the investor must master, it is usually not easy to track the various investments. There is a lot involved: capital calls, distributions, the evolution of net asset value (NAV), calculation of "multiples", and you name it. Although figures are available for each fund, they are sometimes presented differently by managers. Especially for investors who have commitments in different funds, it takes work to keep an overview of the investment as a whole.
Investment goals and strategy
Putting together a private equity program takes time, thought, and discipline. What are the medium- and long-term objectives? What strategies should be considered? What diversification is possible to mitigate risks effectively? How much is the NAV (net asset value) likely to be in a few years? How should commitments be spread to achieve this? How well is the current portfolio performing compared to illiquid markets? These are just some of the questions you will need to ask yourself as a private equity investor to manage your portfolio effectively.
Degroof Petercam Family Office
Degroof Petercam Family Office, an autonomous department within Bank Degroof Petercam guides your decision-making process and assists you in word and deed. In particular by providing you with expert answers to the many questions. Even if you have already made numerous commitments as an investor via Bank Degroof Petercam, other financial intermediaries, or directly, DP Family Office will be happy to share its expertise in private equity and private debt.
- Our first step is to map and analyze your overall assets. Then, DP Family Office conducts a thorough asset audit to get an accurate picture of the current asset distribution and the weight of illiquid investments (private equity and private debt) within it.
- We then thoroughly analyze the commitments you have made under your private equity/private debt program to the various counterparties.
Our analysis per fund and on a consolidated basis provides you with a series of interesting data: the return per fund (and the average return of the portfolio), the types of funds and strategies in which you invest, the phase in which the funds are in (investment phase or yield/distribution phase), calculation of the various return indicators of the funds, the consolidated portfolio, cash flow forecasts, etc.
The conclusions of this comprehensive analysis allow you to refine or adjust your strategy to meet your objectives.
DP Family Office's expertise in illiquid markets rests on four pillars:
- 'Top down' analysis of the private equity and private debt markets as a whole (trends, valuations, etc.).
- Consolidation of the commitments made, both directly and through the various financial intermediaries.
- General guidance in the monitoring, composition, and optimization of a portfolio of illiquid assets so that the allocation meets the pre-defined objectives.
- ‘Bottom-up’ analysis to identify the best managers in different strategies and geographical areas.
Follow-up, guidance and consolidation
- DP Family Office takes quarterly stock of developments and trends in the private equity and private debt markets. In addition to quarterly reports from illiquid asset managers and market studies, there are regular interactions with managers and financial intermediaries (in Belgium and abroad).
- DP Family Office can also guide you in your illiquid program's follow-up, composition, and optimization. During this guidance, your wishes, objectives, and requirements form the starting point (average NAV level to be achieved, management of the J-curve, impact investments, etc.). However, the final decision remains yours. So you decide which commitments you make and how much you want to invest in them.
- During each quarter, DP Family Office closely monitors the file: consolidation of the client's different positions, follow-up of the evolution of capital repayments and distributions, verification and (re)calculation of the multiples, and estimation of cash flows. A major advantage of this cash flow forecast is that it allows investors to optimize their cash management, avoiding the unnecessary setting aside of cash for capital calls whose timing is uncertain.
Finally, the market segment analysis allows us to identify which excellent performing managers of illiquid assets (private equity and private debt) are raising funds. Because of the different multiples in the various strategies, choosing the best managers is essential when putting together an illiquid program.
Guidance on investing in private equity or private debt through Degroof Petercam Family Office