Rev. Date March 18, 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 Asset - Cash Flow Pacing” 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 may apply

How are the projected cash flows calculated?

Venn uses the Takahashi-Alexander Yale model with hard-coded hyperparameters 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 based on a set of hyperparameters, which include:

Venn has a set of hyperparameters calibrated for various types of private asset investments based on published industrial practices. Depending on the asset class and/or strategy of the investment, Venn will select the relevant set of hard-coded hyperparameters as inputs for the model. For information on the set of asset classes and strategies available as input for user uploaded funds, please refer to the “Private Asset Data Upload Template Instructions” section of this article.

The model also requires fund-specific inputs listed below that are either provided by Venn or must be uploaded by the users. If any of the below data points are missing, the cash flow pacing block may 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.

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

Venn has a set of hyperparameters calibrated for various types of private asset investments based on published industrial practices. Depending on the asset class and/or strategy of the investment, Venn will select the relevant set of hard-coded hyperparameters as inputs for the model. The hyperparameters capture a long-run average pattern of the private capital funds, and do not reflect patterns specific to any historical market environment. For example, the slower exit of Private Equity funds in the current environment is not captured by the model with the default calibration of the hyperparameters. As such, there may be discrepancies between the projected cash flow outputs and what one might expect.

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 hyperparameters 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 asset class/strategy classifications (which determine the set of hyperparameters), 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 faster 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 much 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 cash flows?

If one or more funds in your portfolio don't have historical cash flow data, only projected cash flows will be shown. 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 2 years 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 2 years old, Venn will still display the historical 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.

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

If there is a period of time where a private asset investment is missing cash flow data, Venn will forward fill the NAV of the fund adjusted for any contributions and distributions between two marks and assume there were no valuation changes during the time. For example, if a fund has data for 4Q22 and 3Q23 but missing information for 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 for 1Q and 2Q 2023.

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.

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.