System and method for making private equity commitments

• US 20050171882A1
• Filed: 01/30/2004
• Published: 08/04/2005
• Est. Priority Date: 01/30/2004
• Status: Abandoned Application

• Current Assignee: SEI Investments Developments, Inc. (SEI Investments Company)
• Original Assignee: SEI Investments Developments, Inc. (SEI Investments Company)
• Inventors: Nevins, Daniel
• Application Number:
  US10/768,393
• Publication Number:
  US 20050171882A1
• Time in Patent Office: Days
• US Class Current: 705/36.R
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A system and method for committing capital to a private equity portion of an investment portfolio that includes the private equity portion and a liquid portion. A committed capital target is determined based on an expected rate of return of the liquid portion, an expected rate of return of the private equity portion, an expected rate at which distributions are paid from the private equity portion, and an expected rate at which capital commitments associated with the private equity portion are invested. The actual value of committed capital in the private equity portion is compared to the committed capital target. Commitment of further capital in the private equity portion is delayed if the actual value of committed capital in the private equity portion exceeds the committed capital target. Further capital in the private equity portion is committed if the actual value of committed capital in the private equity portion is below the committed capital target.

Claims

1. A method for committing capital to a private equity portion of an investment portfolio, wherein the investment portfolio includes the private equity portion and a liquid portion, comprising:

(a) determining a committed capital target based on an expected rate of return of the liquid portion of the portfolio, an expected rate of return of the private equity portion of the portfolio, an expected rate at which distributions are paid from the private equity portion of the portfolio, and an expected rate at which capital commitments associated with the private equity portion of the portfolio are invested;

(b) comparing an actual value of committed capital in the private equity portion of the portfolio with the committed capital target;

(c) delaying commitment of further capital in the private equity portion of the portfolio if the actual value of committed capital in the private equity portion of the portfolio exceeds the committed capital target; and

(d) committing further capital in the private equity portion of the portfolio if the actual value of committed capital in the private equity portion of the portfolio is below the committed capital target.

2. The method of claim 1, wherein step (a) further comprises determining the committed capital target in accordance with a target for invested capital in the private equity portion of the portfolio.

3. The method of claim 2, wherein the target for committed capital is determined in step (a) in accordance with the following equation:

$C^{*}=I*\left[1+\left(\frac{1}{r_{\mathrm{IN}}}\right)\times <br><br>\left[\left(1-I^{*}\right)\times <br><br>\left(r_L-r_I\right)+r_{\mathrm{DI}}\right]\right]$

wherein C* corresponds to the target for committed capital, I* corresponds to the target for invested capital in the private equity portion of the portfolio, r_L corresponds to the expected rate of return of the liquid portion of the portfolio, r_I corresponds to the expected rate of return of the private equity portion of the portfolio, r_DI corresponds to the expected rate at which distributions are paid from the private equity portion of the portfolio, and r_IN corresponds to the expected rate at which capital commitments associated with the private equity portion of the portfolio are invested.

4. The method of claim 2, wherein steps (a)-(d) are repeated periodically, thereby causing a value representing actual invested capital in the private equity portion of the portfolio to converge to the target for invested capital in the private equity portion of the portfolio.

5. The method of claim 4, wherein steps (a)-(d) are repeated annually.

6. The method of claim 4, wherein at least one of the expected rate of return of the liquid portion of the portfolio, the expected rate of return of the private equity portion of the portfolio, the expected rate at which distributions are paid from the private equity portion of the portfolio, and the expected rate at which capital commitments associated with the private equity portion of the portfolio are invested, are recalculated during a subsequent iteration of step (a).

7. The method of claim 6, wherein each of the expected rate of return of the liquid portion of the portfolio, the expected rate of return of the private equity portion of the portfolio, the expected rate at which distributions are paid from the private equity portion of the portfolio, and the expected rate at which capital commitments associated with the private equity portion of the portfolio are invested, are recalculated during a subsequent iteration of step (a).

8. A system for committing capital to a private equity portion of an investment portfolio, wherein the investment portfolio includes the private equity portion and a liquid portion, comprising a computer with software that causes the computer to:

(a) determine a committed capital target based on an expected rate of return of the liquid portion of the portfolio, an expected rate of return of the private equity portion of the portfolio, an expected rate at which distributions are paid from the private equity portion of the portfolio, and an expected rate at which capital commitments associated with the private equity portion of the portfolio are invested;

(b) compare an actual value of committed capital in the private equity portion of the portfolio with the committed capital target;

(c) delay commitment of further capital in the private equity portion of the portfolio if the actual value of committed capital in the private equity portion of the portfolio exceeds the committed capital target; and

(d) commit further capital in the private equity portion of the portfolio if the actual value of committed capital in the private equity portion of the portfolio is below the committed capital target.