Northern Trust Introduces Capital Call Modeling Tool

Northern Trust has introduced a reporting service that can help investors in private equity funds anticipate cash flow requirements in the short and medium term, improving their ability to manage the liquidity challenges institutional investors face when presented with sudden demands for capital funding.

Private Outlook, developed jointly by Northern Trust and Sand Hill Econometrics, Inc., enables institutional clients to project likely ranges of cash flow behavior in “drawdown” types of investments, including venture capital and buy-out partnerships. Private equity investors typically commit amounts of cash up front, which the fund manager then draws down through “capital calls” over a period of years as the fund identifies investment opportunities. Distributions, or investment returns, are also made on an irregular schedule. This unpredictability has made private equity one of the more challenging asset classes for institutional investors, particularly during the recent market downturn.

"Private equity is a complex asset class, and our institutional clients need to monitor and understand the likely behavior of investment programs with multiple, unique partnerships,” said Paul Finlayson, private equity product manager for Corporate & Institutional Services at Northern Trust, in a company release. “With Private Outlook, investors can trade in their spreadsheets for a flexible tool that combines their portfolio information with historical data on private markets and the economic outlook to model a range of scenarios. Clients can model the behavior of individual portfolios and entire private equity programs, including the likely impact of prospective investments, to estimate cash needs and avoid liquidity surprises.”

Private Outlook offers near- and medium-term modeling. Its one-year model estimates capital calls by integrating portfolio data and historic takedown patterns with environmental factors. The five-year model projects capital call, distribution, and unrealized value scenarios based on actual historical private equity behavior. Both models allow clients to create custom scenarios and review results to develop a more refined capital call estimate.