The Case for Private Equity

Why Private Equity?

What is Private Equity?

  • Investments in private companies or assets through privately negotiated transactions.
  • Investments are made directly into private companies or buyouts of public companies that result in a delisting of public equity.
  • Private Equity managers seek to acquire quality assets at attractive valuations and use operational expertise to enhance value and improve portfolio company performance.
  • Capital is raised from investors for Private Equity, which can be used to:
    • Fund new technologies
    • Invest in organic growth opportunities
    • Make acquisitions
    • Strengthen a balance sheet

Understanding Private Equity

Unlike the public market, private equity provides investors with access to investments in private companies or privately negotiated transactions.

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What are the Benefits of Private Equity?

Advisors are allocating to Private Equity for their clients for the following reasons:

Boost the performance of your overall portfolio

Access to a differentiated return stream not correlated to the stock market’s performance

Invest in fast growing companies not available on publicly listed markets

Traditionally an asset class with lower volatility than the S&P 500 Index

Historical Performance in Private Markets

Opportunities in Private Equity

  • Over the last two decades, half as many companies of the S&P 500 see revenue growth greater than 20%1
  • Private Equity Index has outperformed public market indicies
  • Public companies have been reducing by 3.1% per annum2, while Private companies have been growing by 6.8% per annum2.

Private Equity Index Outperformance Public Market Indices
Ten-Year Rolling Returns (starting in 1989)

Source: S&P500, Barclays Aggregate U.S. Bond Index, Cambridge Associates U.S. Private Equity Index. Historical data taken as of December 31, 2019. Past performance is not indicative of future results. Future performance is not guaranteed and a loss of principal may occur.  The Cambridge Associates US Private Equity Index is a horizon calculation based on data compiled from 1,551 funds, including fully liquidated partnerships, formed between 1986 and 2019.  Note that the strategies for which the performance illustrated above is not reflective of the proposed strategy in this presentation. Note that this slide is provided purely for illustrative purposes.

Please see Disclosure – Public Market Equivalents  (PME) and IRR regarding the use of private equity index for comparison purposes.

No longer the promised land for companies poised to grow, the public stock market is quickly becoming a holding pen for massive, sleepy corporations”

ELISABETH de FONTENAY, DUKE UNIVERSITY 3

1. Source: S&P Captial IQ
2. Source: Pitchbook November 2019
3. Elisabeth de Fontenay “How Private Markets Are Killing Public Equity.” Institutional Investor, April 12, 2017

Why Pantheon & the AMG Pantheon Fund?

Building a Diversified Private Equity Portfolio

Diversification within a Private Equity portfolio takes into account:

  • Vintage–The first year a Private Equity fund makes a portfolio company investment
  • Industry–Industry sectors
  • Geography–Global regions
  • Manager–Investment managers (General Partners)
  • Stage–Private Equity investments’ stages of maturity

Challenges & solutions when looking into Private Equity

Roll over a “challenge” to reveal Pantheon’s method of addressing that issue

Diversification


CHALLENGE

To achieve proper diversification requires investment in a broad range of strategies, and vintage years, with each investment often having high minimums

Diversification

SOLUTION

Diversified across:

  • Manager
  • Sector
  • Stage
  • Vintage
  • Geography

J-Curve


CHALLENGE

Negative flows—and therefore negative returns—characterize the early years of a private equity fund resulting from capital calls, management fees and the cost of investments as money is put to work

J-Curve

solution

Immediate exposure to portfolio of private equity investments

Meeting Target Allocation


CHALLENGE

With long commitment periods, capital calls, and distributions; it is difficult for individuals to hit allocation targets to private equity

Meeting Target Allocation

solution

Portfolio allocation tool with ability to increase or decrease allocation over time

Long Lock-Ups


CHALLENGE

Each new investment resets the clock on client capital being locked into an investment for 8-12 years

Long Lock-Ups

solution

Recommended hold period of 5-7 years with the availability of quarterly liquidity

Capital Calls


CHALLENGE

A well established Private Equity Program will often have multiple capital calls each quarter. Clients are constantly required to create liquidity to meet new capital calls

Capital Calls

solution

Fully funded investment with no future capital calls

The views expressed represent the opinions of Pantheon Ventures (US) LP, and are not intended as a forecast or guarantee of future results, and are subject to change without notice.

More About Pantheon

Founded in 1982, Pantheon is a leading global private equity fund investor, managing private equity funds and separate account programs for investors around the world. The firm’s long-term presence in Europe, the U.S. and Asia has allowed the team to develop an extensive network of relationships for rigorous on-site due diligence and ongoing investment monitoring. Pantheon is a trusted partner to institutional investors across the globe, including public and private pension plans, insurance companies, banks, endowments and foundation

AMG Pantheon Fund

AMG Pantheon Fund seeks long-term capital appreciation by investing primarily in private equity investments, including primary and secondary investments in private equity, infrastructure, and other private asset funds and co-investments in portfolio companies.

1. As of June 30, 2021. Please note this includes 25 professionals who support the deal teams through investment structuring, portfolio strategy, research and treasury.
2. As of March 31, 2021. This figure includes assets subject to discretionary or non-discretionary management or advice.

Disclosure – Public Market Equivalents (PME) and IRR

Investment returns on portfolios of listed securities are typically calculated and presented using the time-weighted return 

(“TWR”) method, whereas the industry standard for non-liquid, non-marketable assets such as private equity is the internal rate of return (“IRR”).  The TWR return of a public market index is therefore not directly comparable to the IRR of a private equity investment because the former does not take into account the timing or size of cash flows in and out of a portfolio. 

For benchmarking purposes, Pantheon has adopted a method published by the University of Texas on August 28, 1995 which modifies the computation of the time-weighted public index to make the two measures directly comparable. The result is a methodology that shows how net funds invested in a private equity portfolio would have performed had they been invested in an applicable public stock index such as the FT All Share or the S&P 500.

Periodic cash flows for the private equity treat outflows as negative and inflows as a positive;  where IRRs are being calculated for a specific time period, rather than since inception, the opening valuation is treated as the first outflow. To calculate the IRR of the private equity portfolio the residual value is included in the last cash flow (i.e. assuming the assets are realized at the report date). 

To derive the index return, the index comparison or notional index residual valuation at the end of each time period is calculated using the same cash flows as the private equity portfolio. The index valuation is calculated at the end of each time period until the report date when it is included in the final cash flow.

The use of a private equity index has several limitations in depicting the performance of private equity as an asset class. The funds included in the indices are those that choose to self-report. Thus, the indices may not be representative of the entire private equity universe, and may be skewed towards those funds that generally have higher performance. Included funds may lack of commonality. Over time, the components of the indices change. Funds are included and excluded based on performance, creating a “survivorship bias” that can result in a misrepresentation of performance.  

Investors should carefully consider the Fund’s investment objectives, risks, charges and expenses before investing. For this and other information, please call 800.835.3879 or visit www.pantheon.com/our-strategies/amg-pantheon-fund/ for a prospectus. Read it carefully before investing or sending money.

This information is not an offer to sell securities issued by AMG Pantheon Fund, LLC (the “Fund”).

All investors in the Fund must be “Accredited Investors,” as defined in Regulation D under the Securities Act of 1933. The Fund is a non-diversified, closed-end investment company designed for long-term investors and not as a trading vehicle. The Fund has limited operating history upon which investors can evaluate potential performance.

The Fund differs from open-end investment companies in that investors do not have the right to redeem their units on a daily basis. Instead, repurchases of units are subject to the approval of the Fund’s Board of Directors (the “Board”). The Fund’s units represent illiquid securities of an unlisted closed-end fund, are not listed on any securities exchange or traded in any other market, and are subject to substantial limitations on transferability. LIQUIDITY IN ANY GIVEN QUARTER IS NOT GUARANTEED. YOU SHOULD NOT INVEST IN THE FUND IF YOU NEED A LIQUID INVESTMENT.

The Fund will invest substantially all of its assets in AMG Pantheon Master Fund, LLC (the “Master Fund”). This investment structure is commonly referred to as a “masterfeeder” fund arrangement. The investment advisor of the Fund and the Master Fund is Pantheon Ventures (US) LP (the 

“Advisor”). The Master Fund is non-diversified, which means that it may be invested in a relatively small number of underlying funds or portfolio companies, which subjects the Master Fund, and therefore the Fund, to greater risk and volatility than if the Master Fund’s assets had been invested in a broader range of issuers. No assurance can be given that the Master Fund’s investment program will be successful. An investment in the Fund should be viewed only as part of an overall investment program.

An investment in the Fund is speculative and involves substantial risks. It is possible that investors may lose some or all of their investment. In general, alternative investments such as private equity or infrastructure involve a high degree of risk, including potential loss of principal invested. These investments can be highly illiquid, charge higher fees than other investments, and typically do not grow at an even rate of return and may decline in value. In addition, past performance is not necessarily indicative of future results. 

In addition to all of the risks inherent in alternative investments, an investment in the Fund involves specific risks associated with private equity investing. Underlying funds and many of the securities held by underlying funds may be difficult to value and will be priced in the absence of readily available market quotations, based on determinations of fair value, which may prove to be inaccurate. Fund investors will bear asset-based fees and expenses at the Fund and Master Fund levels, and will also indirectly bear fees, expenses and performance-based compensation of the underlying funds.

Underlying funds will not be registered as investment companies under the Investment Company Act of 1940, as amended (the “1940 Act”), and the Master Fund’s investments in underlying funds will not benefit from the protections of the 1940 Act. The value of the Master Fund’s investments in underlying funds will also fluctuate and may decline.

The Fund’s investment portfolio through the Master Fund will consist of primary and secondary investments in private equity funds that hold securities issued primarily by privately held companies (“Investment Funds”), co-investments, ETFs, cash and cash-equivalents. Many of such investments involve a high degree of business and financial risk that can result in substantial losses.

PLEASE SEE THE PROSPECTUS FOR A MORE COMPLETE DISCUSSION OF THE RISKS ASSOCIATED WITH INVESTING IN PRIVATE EQUITY, THE FUND AND ADDITIONAL SPECIFIC RISKS RELATING TO SECONDARY INVESTMENTS, CO-INVESTMENTS AND ETFS.

Any statements regarding market events, future events or other similar statements constitute only subjective views, are based upon expectations or beliefs, should not be relied on, are subject to change due to a variety of factors, including fluctuating market conditions, and involve inherent risks and uncertainties, both general and specific, many of which cannot be predicted or quantified and are beyond the Fund’s control. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying these statements. In light of these risks and uncertainties, there can be no assurance that these statements are now or will prove to be accurate or complete in any way. No representation is made that the Fund’s or the Master Fund’s investment process or investment objectives will be or are likely to be successful or achieved.

Nothing contained in this document is intended to constitute legal, tax, securities or investment advice. The general opinions and information contained herein should not be acted or relied upon by any person without obtaining specific and relevant legal, tax, securities or investment advice.

The information in this document is supplied by Pantheon Ventures (US) LP, an affiliate of AMG Funds LLC. AMG Funds LLC does not guarantee the accuracy of such information, but believes it to be reliable. Additional information is available upon request.

Investment products are not FDIC insured, are not bank guaranteed and may lose value.

AMG Pantheon Fund, LLC is distributed by AMG Distributors, Inc., a member of FINRA/SIPC.

AMG Distributors, Inc. is a wholly owned subsidiary of AMG Funds LLC and Pantheon Ventures (US) LP is majority owned by Affiliated Managers Group, Inc. (AMG). 

Pantheon Securities, LLC, a member of FINRA/SIPC, serves as  the sub-distributor for the Fund.