In the current market environment, institutional investors worried about cash management want advance notice of when capital calls are coming, says Stuart Waugh, managing partner at Northleaf Capital Partners.
In response, Northleaf has created a new matrix to help institutional investors. “We actually built a matrix of all of our investors across all of our different individual funds, so that we could anticipate and project the capital calls, not just on a fund-by-fund basis, but also on an investor-by-investor basis.”
The firm has almost 50 per cent of investors invested in multiple strategies and more than 80 per cent invested in at least two different funds. To simplify matters, the matrix aggregates information across different funds and strategies to provide a consolidated view.
While the matrix isn’t providing net new information, it’s consolidating the information in a way that is helpful and re-assures investors that the firm won’t deviate from the regular capital call pattern, Waugh adds. “And then that just gives them the ability to manage their own cash needs and their own cash position.”
Most of Northleaf’s funds are denominated in U.S. dollars, meaning Canadian investors will need to convert currency. Having advance notice gives investors time to sell other parts of their portfolios to fund capital calls and handle foreign exchange issues.
The matrix also allows the firm to track distributions from the funds and provide the internal team and investors a net cash flow projection. “If they know that they’re in our third private equity fund and our fourth private equity fund, we might be calling capital for the fourth at a time when the third fund is distributing capital.”
Being able to provide a net cash flow projection is helpful, Waugh adds, noting he anticipates even after the crisis the firm will continue to use this new tool.