How we helped a Private Equity firm in facilitating end-to-end financial due diligence on one of the biggest LP deals

March 17, 2023

The Context

The client, a Private Equity firm wanted the TresVista team to commence the portfolio summary exercise to get a quick understanding of the top contributors (both by way of assets and funds) and their aggregate exposure. For this, the client sent over the deal details to be logged on their database and provided a data room for the sale portfolio. Once the deal entered the LOI stage, the team was required to conduct a bottom-up financial due diligence on the top assets of the major funds.

The Objective

To facilitate end-to-end financial due diligence on one of the biggest LP deals led by the client.

The Approach

The TresVista team followed the following process:

  • Managing CRM Database: Logged the deal on the client’s database and updated further details based on additional deal material and the outcomes of various deal stages
  • Conducting Preliminary Analysis: Curated a summary of all the unique assets across the portfolio’s funds to analyze exposure by currency, vintage, sector, etc.
  • Carrying out Financial Due Diligence: Prepared secondary fund models to evaluate the top funds by NAV. For the rest, the team deployed a top-down valuation approach
  • Creating Investment Memo (IM): Leveraged deal material, deal team’s insights into GPs, secondary research and GP calls for top 10 assets to prepare a detailed IC Memo

The Challenges We Overcame

The major hurdles faced by the TresVista team were:

  • Paucity of data for private companies in GP reports and on the databases made effective underwriting quite challenging. Furthermore, finding risks and risks mitigants for such companies required deep research and numerous subjective decisions
  • Drawing a quantitative inference from qualitative aspects of Expert / GP calls and incorporating them in asset underwritings required multiple discussions
  • Due to the lack of a direct relationship with some GPs, it was difficult to assess their quality
  • Disaccord in data due to inconsistent GP reporting resulted in several back-calculations across fund-level data points

The TresVista team overcame these hurdles by leveraging expert calls and knowledge from previously underwritten deals/funds. The client provided an industry-pertinent outlook for the assets, which helped the team to manually assign a secondary uplift based on the assets’ returns to date. Additionally, the team developed a standard approach to interpret information from the GP reports of the previously underwritten funds. Moreover, the team periodically reached out to the deal team for additional discussions.

Final Product (Sanitized)

The Value Add – Catalyzing the Client’s Impact

The TresVista team built an automated portfolio summary excel file for the client containing the top contributing assets, which helped them classify and analyze their portfolio based on vintage year, geography, industry, currency, etc. Additionally, the team incorporated individual fund tabs with asset-level details to build a panorama across the entire portfolio. The team also developed full-fledged secondary fund models, which in turn helped the client arrive at lucrative pricing and construct an effective deal structure.