Rev. Date September 19, 2024

The illiquidity of private asset investments means that investors need to plan accordingly for their cash needs while meeting the allocation requirements for their private asset portfolios. Cash flow pacing models seek to project how capital will be called and paid out for private asset investments or portfolios, and help investors plan for future cash flows.

What cash flow pacing features are available in Venn and where can I find them?

Venn offers analysis blocks for Contributions, Distributions, NAV and Net Cash Flows. For each block, Venn provides the historical and projected cash flows, and the typical cash flow profiles of an asset class or strategy. Contributions, Distributions and Net Cash Flows can be analyzed on a cumulative basis by clicking the Cumulative Historical Contribution toggle in the block configuration panel.

Cash flow data can be visualized in a chart or table format by selecting the option under the “format” section of the configuration panel. Please note that the chart format only supports single subjects while the table format supports multiple subjects.

You can access these blocks under the “Private Assets” section in the “Insert” tab of Studio and Report Lab.

Please note that cash flow modeling is only available in Studio and Report Lab. To access Studio or Report Lab, please reach out to your Client Solutions representative. Additional fees apply.

How are the projected cash flows calculated?

Venn uses the Takahashi-Alexander Yale model with Venn-calibrated parameters to model cash flow pacing.[1] The model outputs projected contributions, distributions, and NAV for private asset investments and portfolios. The projected net cash flow is calculated as the net of projected contributions and distributions.

The cash flow pacing model computes the projected cash flows of a single private asset fund based on a set of parameters, which include:

Note the cash flow pacing model parameter values are denoted on a quarterly basis.

Venn has a set of parameters calibrated for various types of private asset investments using a database of fund-level cash flow data from Preqin. Depending on the asset class, strategy, and vintage of the investment (“classification”), Venn will select the relevant set of calibrated parameters as inputs for the model.

The model also requires fund-specific inputs listed below that are either provided by Venn or uploaded by the users. If any of the below data points are missing, the cash flow pacing block will not run and Venn will display an error message.*

*If both the performance data and historical cash flow transactions are missing for an investment, the date of projection start will be the fund’s vintage and the starting NAV and paid-in-capital will be assumed to be $0.

A portfolio’s overall projected cash flow is computed by aggregating the cash flow projections of the underlying funds, as illustrated in the chart below.

Note: This chart is not an available graphic in Venn and is for illustration purposes only.

How are the parameters calibrated?

Different asset classes, investment strategies, and market conditions exhibit unique cash flow pacing patterns, and capturing these behaviors helps improve the predictive accuracy of the TA Yale model. Venn uses the historical cash flow data of all relevant funds in a given private asset fund classification (asset class/strategy/vintage combination) to estimate the TA Yale model input parameters.[2] We do not include funds that do not have any reported data for one or more of the cash flow types (commitment, contribution, distribution, NAV) or funds whose vintage is prior to 1990. Furthermore, we currently only use funds with USD cash flows.

What classifications does Venn have calibrated parameters for?

Venn-calibrated parameters are only available if the number of relevant funds of a given asset class/strategy/vintage combination is greater than 50. Below is a list of all classifications for which Venn has calibrated parameters. Please note that this list and the calibrated parameter values are subject to change based on data availability.

*Venn currently does not have parameters calibrated for any specific vintage years for the Real Estate Core strategy.

Note that for user-uploaded funds, asset class and strategies must be entered exactly the same as one of the options above for Venn to accurately select the calibrated parameters. For information on user-uploaded data, please refer to the “Private Asset Data Upload Template Instructions” section of this article.

How are parameters selected for a private asset investment?

Given the private asset investment’s classification, Venn will select a set of parameters from the list above. For asset class/strategy /vintage combinations that Venn does not have calibrated parameters for, Venn will revert to using general parameters following the below hierarchy:

Where can I see the parameters being used for my Cash Flow Pacing model?

Cash flow pacing model parameters of private asset investments can be viewed by clicking the “...” in the “Actions” column in the Data Library and selecting “CF Pacing Model Parameters.”

What are the limitations of the Cash Flow Pacing model in Venn?

The calibrated parameters capture the average historical behavior of funds within the relevant fund universe, and do not capture any fund-specific, idiosyncratic behavior. As a result, the projected cash flows of a particular manager may have idiosyncratic estimation errors from realized cash flows. In addition, as noted for each asset class above, Venn does not always have a set of calibrated parameters for certain fund vintage years or strategy types. In these cases, the general parameters would capture a long-run average pattern of the private capital funds, and do not reflect patterns specific to any historical market environment or specific asset classes/strategies. The actual cash flow needs and returns of particular investments will be different from the model output.

Furthermore, the TA Yale model provides one deterministic output, which ignores the level of uncertainty associated with the projected cash flow realizations.

Can I use my own parameters or override Venn’s parameters for my private asset investments?

Venn offers two different ways to customize parameter inputs for a private asset investment’s cash flow pacing model:

When should I use a Classification Override vs Parameter Overrides?

Classification Overrides may be more suitable for users who don’t have views around the specific parameter values, but want to change the asset class, strategy, and/or the economic period (vintage) to better reflect the manager’s specific cash flow patterns. For example, if you have a Private Equity Buyout fund Vintage 2020, Venn will be using the parameters calibrated for Private Equity Buyout funds across all vintages. However, if you believe this particular manager will behave more like a Growth fund, you can override the strategy classification of this fund to ‘Growth’ instead of ‘Buyout’. Venn will automatically apply the set of parameters calibrated for Private Equity - Growth - All vintages.

Parameter Overrides are suitable for users who have specific parameter values that they wish to customize. For example, an investment’s default life expectancy parameter for an investment may be 44 quarters (11 years). However, you believe this manager will be slower to distribute cash flows and that the fund life would actually be close to 60 quarters (15 years). You can create a new Parameter Override setting to only customize the life expectancy of the fund while keeping the other input parameters at default levels.

How do I create or apply custom settings?

Step 1. Open the Cash Flow Pacing Model Parameter Settings modal

The parameter setting modal can be accessed by:

Step 2. For a portfolio, first select a fund that you wish to customize parameters for using the dropdown.

If you accessed the modal from the allocation panel or from Manage Data, the fund that you opened the modal from will be pre-selected.

On the right hand side of the modal, there will be a table of parameters that are currently applied to the fund (Active Setting).

Step 3. Select the parameter setting to apply to the fund (Default, Classification Override, or Parameter Override)

Step 4. Select a custom setting you’ve created before, edit a previously created setting, or create a new custom setting

To apply a custom setting you’ve previously created, select the setting from the dropdown. Once you’ve selected a custom setting from the dropdown, you can click “EDIT” to make any adjustments. Note: any edits will be applied to all funds that the custom setting is currently applied to.

You can create a new custom setting by clicking “ADD NEW.” For Classification Overrides, you can select the classification to define the calibrated parameters. Venn will display a table of parameters based on the classification chosen that can be compared against the Active Setting. For Parameter Overrides, you can change the values for each of the input parameters. Venn will provide the default levels for each fund as a reference point.

Once you are happy with the overrides, click “SAVE” to save the custom setting. The saved custom setting will be available in the settings dropdown and can be applied to any private asset investments in your workspace.

Step 5. Click “APPLY CHANGES” or “APPLY CHANGES & CLOSE” to apply the select setting to the fund.

Can I upload parameters or update the parameters for my investments in bulk?

Venn currently does not support uploading of custom parameters in bulk. You may apply a custom setting to more than one private asset investment, but custom parameters will need to be applied on a fund by fund basis – Venn currently does not support bulk application.

Can I override parameters for all funds in a given asset class or strategy?

Custom parameters (classification override or parameter override) are currently only available at the fund level. If you create a classification override setting, the parameters will only be updated for funds with that setting applied.

For example, if Fund A’s default parameter classifications are Private Equity - Buyout - 2018 and this is overridden to Private Equity - Growth - 2010, only Fund A’s parameters will be changed and all other funds classified as Private Equity - Buyout - 2018 will not be impacted.

How do I delete custom parameter settings?

You can see the list of all available custom parameter settings in your workspace in Settings > Workspace Configuration > Manage Cash Flow Model Settings.

You can delete any setting by clicking the “...” icon > “Delete.” Note that any funds that the custom setting is currently applied to will automatically switch back to the Venn Default parameter setting.

You can view the list of all funds that a custom setting is applied to by clicking “...”icon > “View funds using this setting.”

What is the “typical” cash flow profile and how is it computed?

The “typical” cash flow profile (such as “Typical Contributions Profile” or “Typical NAV Profile”) reflects the cash flow profile of an average private asset fund in a given asset class/strategy category, and can serve as a reference point for understanding the cash flows of your investments.

The typical profiles are the model outputs without any fund specific data (e.g., historical cash flows) and only the capital commitments and parameters as inputs, projected starting from the fund's inception date. For a portfolio, the typical cash flow profiles are first computed for each of the underlying investments based on their classifications (which determine the set of parameters), then the fund level profiles are aggregated to form the portfolio’s typical cash flow profile.

How should I interpret the typical cash flow profiles?

The typical cash flow profiles can be used as a reference point for understanding the cash flows of your investments or portfolios. For example, the chart below shows that the cumulative net cash flow of the sample portfolio is larger than the typical profile in the earlier years. Furthermore, the sample portfolio starts to have positive net cash flow slower than the typical pattern for this portfolio.

Source: Venn. Historical and projected cumulative net cash flows and the typical net cash flow profile for a sample portfolio.

The sample portfolio’s historical NAVs are also higher relative to the typical NAV profile. This could indicate that the selected managers in the portfolio outperformed what’s typical of investments of the same asset classes/strategies.

The projected distributions are also higher than the typical distribution profile of this sample portfolio. This could be a result of the higher NAV historically realized by this portfolio (which would indicate that there are more funds projected to be distributed out), and also could indicate that the funds did not distribute enough relative to the typical pattern.

Source: Venn. Historical and projected distributions and NAV and the typical distribution and NAV profiles for a sample portfolio.

Does Venn’s cash flow projections include future investments or commitments?

A portfolio’s overall projected cash flow is computed by aggregating the cash flow projections of the underlying funds. As such, the portfolio’s projected cash flows only reflect the expected cash flows of the funds already allocated to today, and does not take into account any potential future investments or commitments that may occur.

Can I enter any commitment size in the allocator panel, even if it’s different from what I’ve uploaded?

The capital commitment uploaded via the template (or system provided) and that’s shown in the metadata tab of Manage Data is the initial commitment size that the provided cash flow and performance metrics are based on. For single fund cash flow pacing, this is the value Venn will use for the model input.

For portfolio cash flow pacing, the capital commitment entered into the allocator panel is what will be used as the model input. As default, when an investment is added to a portfolio, the investment’s commitment size saved as metadata will be displayed. This number can be altered, and based on the capital commitment entered in the allocator panel, all relevant metrics will be scaled accordingly. For example, if a fund’s cash flows are based on an initial capital commitment of $10M and a user enters $20M as the commitment for the fund in their portfolio, cash flow data will be scaled by x2.

How do I change the projection start date?

As default, the date of projection start will be the most recent date that the historical cash flow data are available for. If a portfolio has multiple underlying funds with historical cash flow data available through different dates, Venn will select the most recent date across all funds as the projection start date. For example, if a portfolio has Fund A with historical cash flows available through 1Q23 and Fund B through 2Q23, projections for the portfolio will start 3Q23.

To change the projection start date, click on the dropdown option under the “Projection Start” section of the block configuration panel and select a date range input. The projection will start from the end date of the date range selected.

The full cash flow model (historical and typical profiles) will start from the oldest fund’s vintage or inception date. This date cannot be changed in the charts.

Why am I not seeing any historical or projected cash flows?

If one or more funds in your portfolio don't have historical cash flow data, historical and projected cash flows will not be shown for the total portfolio. This is because if only some of the funds underlying the portfolio have historical cash flow data while others do not, the aggregated historical cash flows displayed would understate the actual cash flows at the portfolio level. If an investment is 1 year or older since inception without any cash flow data, Venn considers that investment to be missing cash flow data. If an investment is less than 1 year old, Venn will still display the historical and projected cash flows for the portfolio in case the investment does not have actual cash flows yet as it’s still early in the fund’s life.

Furthermore, Venn assumes that it is unrealistic that a fund distributes capital before calling capital. As such, if one or more funds in your portfolio also has distribution reported before realizing any capital calls, Venn will consider the reported data as low quality, and both historical and projected cash flows will not be shown.

I am missing the historical cash flow data of my funds for certain dates. How will Venn treat the data gaps?

Private asset investments often have incomplete data. As such, Venn makes some data modifications to be able to display historical and compute projected cash flows as much as possible. If there is a period of time where a private asset investment is missing NAVs, Venn will forward fill the NAV of the fund by taking the latest available NAV, adjusted for any contributions and distributions, assuming there were no valuation changes during the time. For example, if a fund has NAVs reported for 4Q22 and 3Q23 but missing NAVsfor 1Q23 and 2Q23, NAV as of 4Q22 will be carried forward through 1Q and 2Q of 2023 until a new mark is available for 3Q. The 4Q22 NAV will be adjusted for any contributions or distribution data available reported in 1Q and 2Q 2023. When NAVs are forward filled for more than 4 quarters, Venn will warn the user with a list of impacted funds. Details can be found by clicking on the “Contains Venn-Modified Data” button in Studio or in the back disclosures in Report Lab.

For outdated capital calls or distributions, Venn will not make any modifications, and use the latest paid-in-capital and cumulative distributions available for the cash flow projections. For example, if the last reported capital calls and distributions are as of 1Q 2023, but the user starts projections from 4Q 2023, the starting paid-in-capital and cumulative distributions for the model would be the values as of 1Q 2023. If capital calls and distributions are missing for more than 4 quarters and 20 quarters respectively, Venn will alert the user that the projected cash flows are based on outdated historical data.

How do I add future commitments?

To account for future commitments in your cash flow projections, you must first upload the necessary information for the “future investments”:

Below is a sample of how one might fill out the upload template for the future commitments:

[1] Takahashi, D. and Alexander, S., 2002. Illiquid alternative asset fund modeling. The Journal of Portfolio Management, 28(2), pp.90-100.

[2] Data source: Preqin. Preqin Ltd. Copyright 2024 Preqin Ltd. All rights reserved.

Private asset portfolios are less liquid than public asset portfolios and have additional risks, including the risk of loss.

Cash flow pacing models rely on historical data and the typical cash flow profiles of an asset class or strategy to make projections based on assumptions. A fund’s or portfolio’s actual cash contributions and distributions will be different from those shown by the model.

This document highlights certain aspects of this feature. As an overview, it does not discuss all material facts or assumptions. Please see Important Disclosure and Disclaimer Information.