This HBS Case majorly discusses about a proposal from Peter Lawrence and Diana Frazier where they want to create an investment fund through which they will take investments from wealthy families and then reinvest the same into Venture Capital funds through private equity.
The target group of investors for this new fund was clearly the wealthy families of United States who had been thus far investing in venture funds in an unstructured manner.
Assumptions made by Lawrence and Frazier:
1) Wealthy class required educated and guided direction in channelizing their money into Venture funds to get better returns.
2) Private Equity investment needed to be diversified across funds based on geography, industry and maturity stage. Such diversification would reduce the risk from investing in Venture Capital
3) Families investing in Private equity for the first time had to do so in less established firms and hence would get pathetic returns and hence would have been dissatisfied with this asset class.
Based on the above, Lawrence and Frazier thought that they would be able to bring in a qualified set of fund managers who would work along the principles of diversification of private equity based on the factors mentioned below and deliver returns. This proposition itself would make the fund attractive to wealthy families was the assumption.
Guidelines for investing decided by Lawrence and Frazier:
1) Convince and educate wealthy families to invest in diversified asset classes including investment in venture capital through private equity.
2) To invest in only those funds whose performance was in the top quartile. These would be essentially large funds with excellent track records.
3)Diversified portfolio creation as follows:
a.35% in large funds
b. 40% in funds specializing in specific sector/industries
c.20% to new funds
d.5% to international funds
4) It would not invest more than 10% of its total