Focus on complete portfolio transparency and understanding
We have developed proprietary processes and tools from an operational perspective for evaluation of portfolios, value creation in portfolios, and reporting on portfolios and companies.
Working with the client, we develop a list of outcomes from the assessment surrounding portfolio risk, company execution and portfolio categorization. We have developed models for developing deliverables such as ‘Company Report Cards’, ‘Portfolio Dashboards’ and ‘Progress Against fund Expectations’. With a focus on full asset transparency, we have a track record of copacetic partnership working with GPs. We work to create alignment of interests all the way from portfolio companies to LPs.
We often create additional opportunities to enhance returns – at both the portfolio level and at the company level.
State pension fund was a large investor in an under-performing private equity fund with numerous, smaller funds
Pension fund itself was in challenging position having recently written down a substantial amount of its overall portfolio
The pension fund wanted to remove the GP, but had no experience in the matter
Kirchner was engaged to provide an independent assessment of the situation to help educate the pension fund whether GP removal, or another alternative, would be most effective
Engagement was scoped to include an evaluation of the underlying portfolio companies and their prospects for generating meaningful recovery of capital to help inform the LP’s decisions regarding their go forward options (replace or augment the GP, write off, let things play out)
Kirchner began the engagement by first collecting and reviewing all of the portfolio company files made available by the LP and GP
Kirchner then met face-to-face with all management teams
Kirchner conducted a detailed analysis of each of the individual companies, their management teams, business models, and other pertinent information to inform its perspective on the quality of growth prospects for each company, and as a portfolio
Kirchner quickly realized that there were thematic issues with how the portfolio had been constructed and managed that would make it difficult to materially improve the value of the companies. These issues included:
Systematic customer concentration issues throughout the portfolio
Poor internal accounting and costing systems, making it difficult for portfolio companies to actually understand and optimize product/volume mix
Lack of ownership for management teams (i.e. no incentive compensation or ownership, creating an “employee culture”)
Lack of product differentiation or competitive advantage against competitors
Kirchner’s evaluation of the portfolio companies identified these issues and more
The analysis also included a company-by-company recommendation on what could be done in order to materially increase the likelihood of an attractive exit
In spite of this, Kirchner also noted that the time and additional resources required to effectuate these improvements to the companies may not lead to enough of a lift in value to offset the additional costs and political drama associated with the LP’s ongoing unrelated issues
Kirchner also provided the LP with an overview of go-forward options at the fund/portfolio level with regards to additional support and resources that could help the GP succeed
As a result of this analysis, the LP did not move to replace the GP, and began to focus their resources on the low hanging items Kirchner identified that could create value within the portfolio companies in conjunction with the existing GP