The investment activities of private equity firms encompass every aspect of the lifecycle of an organization, ranging from start-ups to mature businesses. There are three general types of private equity: venture capital, mezzanine, and leveraged buyouts (LBOs). The goal of private equity investing is to generate substantially greater returns than the long-term historical equity markets, enhancing overall portfolio performance. Achieving such performance comes at a price: higher levels of risk and very limited liquidity. Most private equity pools require long investment horizons (at least five to seven years) and do not provide positive cash flow in the early years of the investment. Within this broad spectrum of private equity, there is a great deal of specialization among firms. As a result, we work with clients to build a diversified portfolio with different managers and diverse strategies suited to their needs.
As investors build programs to harness some of the benefits of private equity investing, NEPC strives to educate decision makers about the appropriate uses and potential risks of the asset class. In addition to general education, NEPC works with clients to devise plan structures that diversify their programs by style, vintage year, and manager, utilizing both funds-of-funds and direct partnership investments. Upon this foundation of education and plan design, NEPC works with clients to execute the private equity program through manager searches to find the best qualified, most appropriate private equity managers for our clients' plans. Following the investment in a private equity manager, NEPC will closely follow the progress of the manager and provide clients with performance measurement analytics (such as IRR, Distribution to Paid-In Capital multiples, and other measures of performance) and periodic updates on the managers' progress, including information obtained from frequent conference calls and attendance at annual meetings. In addition, NEPC seeks to share some of its insights on the private equity markets through the distribution of periodic market commentaries that are distributed directly to clients.
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