Investing with confidence

How Analytical Portfolio Management enables LPs to make better investment decisions

When LPs are making their investment decisions in the private markets there are a lot of considerations that need to be taken into account. In this whitepaper we are going to explore three of these and show how analytical portfolio management solutions can assist, giving investors the confidence to make decisions and the technology to back them up.

Fund manager selection is at the core of private market investing

With over 13,000 fund managers and a very broad choice of fund strategies seeking over $3trn in capital, investors have a lot of choice in terms of what they want to invest in. With more options and data available, making decisions has become that much more complex. Simply put, everybody wants to pick funds that will end up in the top quartile – but that is easier said than done.

The performance gap between the top and the bottom quartile funds is significant. As the chart below shows, the performance gap for funds varies among asset classes, with private equity having the widest performance gap. As such, making informed investment decisions is key to long-term success.

The fund selection and due diligence processes that happen before investors commit capital are at the core of successful LP investing. And these tend to be much more intensive and laborious than you might see in traditional shares and bonds. This is because these investment decisions have longer-lasting impacts due to the illiquidity of the asset class. That’s why a thorough manager selection process is of vital importance.

The fund selection and due diligence processes include a mix of qualitative and quantitative analyses and assessments. Each investment decision is unique for each transaction at a specific point in time. There is no ‘one-size-fits-all’ proposition to follow. However, certain best practices validate that important considerations include:

  • the cohesiveness and experience of the fund manager team;
  • the proven and clearly defined investment strategy;
  • a consistently strong manager track record; and
  • the alignment of interests.

As a human being, the portfolio manager is vulnerable to being unduly influenced by the storytelling of providers. But does the story hold water when tested with quantitative data analysis? Investors should be taking an analytical approach to private markets investment decisions to avoid sub-optimal allocations due to a biased decision process.

The most obvious application of data-driven analytical approaches is fund manager track record analyses. These are performed to various degrees of detail by all LPs, internally or by an external advisor. A deep dive into the track record of fund providers can answer some important questions: 

Did the fund manager execute a solid value creation plan or did they simply benefit from low interest rates and multiple expansions?

Multiple expansion was a key value driver in private equity over the last few years. With increasing interest rates, the multiples have shrunk and are not likely to be growing anytime soon. This requires GPs and their portfolio companies to have solid value-creation plans in place to drive value from revenue growth and margin improvements. The attribution analysis provides more clarity on the manager’s track record.

What is the loss ratio of the fund manager?

Was the success of the fund caused by a small number of successful investments or did the manager consistently develop the bulk of the portfolio companies? Reports that focus on the consistency of the manager help to find patterns.

How does the manager fare when compared to benchmarks and other peers?

How did the manager perform compared to benchmarks and peers? This helps investors gauge how the manager’s historical performance stacks up against industry norms.

Secondary markets require asset-level analysis

For investments in the secondary market, additional data points become available as the fund already owns portfolio companies. Analytical LP Portfolio Management can support the analysis of the value of these investments according to the practices of the LP.

  • Fair value model. Data analytics enables LPs to determine the fair market value of the fund holdings, by analysing historical performance, cash flows, and market conditions.
  • Portfolio allocation optimisation. Information about the individual assets supplements decisions about the asset allocation of the LPs themselves. Data analytics can assist in identifying which funds align best with the broader investment goals.

Armed with data, LPs put themselves in much stronger negotiating positions. They can justify their pricing expectations and terms based on objective analysis, increasing the likelihood of achieving favorable outcomes.

Speed up the due diligence process for investments

Analytical portfolio management focuses on the data and provides comparisons of the historical performance of previous funds from the fund manager. This supports a two-phased process:

1 – Selecting a short list of funds.

A high-level comparison allows investors to quickly have a high-level qualification of the investment opportunities and decide if it’s worthwhile engaging in more detailed due diligence processes. The main decision criteria are often the match with the strategic asset allocation and cash flow expectations, augmented, in some cases, with considerations about ESG and impact investing.

2 – Performing detailed track record analysis.

For a small number of funds, a detailed track record analysis of the fund manager will provide more insights about the ability to consistently deliver value to investors. It allows for efficient benchmarking of the investment opportunities.

With automated data integration processes and best-in-class track record analysis, LP portfolio management is cutting the time needed to produce a benchmark report on how the investment opportunity compares to other private market investments. Data and algorithms validate the investment decision and improve the asset selection process.

As you can see, these three benefits point to how powerful a robust analytical portfolio management solution can be for private market investors. By leveraging the right technology and integrating it into your workflow, you can make more confident data-driven decisions that align with your wider goals and fit into the risk-reward profile you are aiming for.

Apliqo LP Portfolio Management can be that solution, providing an easy-to-use and innovative platform that helps you make better decisions in uncertain markets.

Optimise your decisions with a single, unified view of your entire portfolio, and achieve the following:

  • Radical transparency on your investment performance with a unified tool for data collection, analysis, and reporting that’s built specifically for portfolio managers.
  • Optimise your fund investment decisions with superior analysis during due diligence.
  • Leverage more effective communication with key stakeholders with accurate and consistent performance reporting and analysis for private market investments
  • Reduce your efforts through powerful data management to increase velocity with automation.

Learn more about the solution at and embark on the product tour to explore how the software can help you with:

  • Performance reporting;
  • Cash flow projections;
  • Investment pacing;
  • Fund manager track record analytics;
  • Scenario development and tracking; and
  • Asset-level analytics.
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