JULY 2016 | VOL. 2 page 1

Private Markets INSIGHTSPrivate Markets INSIGHTS

Please visit www.harbourvest.com for additional news and updates.

WHAT’S INSIDE:>> HarbourVest’s mezzanine/ co-investment strategy – Managing Director Peter Lipson explains why our longstanding equity orientation makes us a more aligned and valued mezzanine investing partner (page 2).

>> SPOTLIGHT Asia Pacific – we look at fundraising, investment, and exit trends as we celebrate our 20th year in a region that is increasingly becoming a core part of global investors’ portfolios (page 4).

>> Gender diversity in private equity – Managing Director Kathleen Bacon offers her views on the gender diversity gap in the industry, and what can be done to encourage more women to seek careers in private equity (page 6).

>> New research and insights – highlights from our new report on the global secondary market, and our recent webcast on the basics of private equity portfolio construction (page 8).

INVESTING IN AN AGE OF UNCERTAINTYThis was the theme of HarbourVest’s global markets review at its annual meeting in May, which identified the following risks as standing out for their complexity and potential to produce divergent outcomes for markets:

>> China – will it be a soft or hard landing?>> Oil – lower for longer or a price recovery?>> Emerging markets – sustained recovery or continued doldrums?>> U.S. Fed – tightening or hold low rates in place?>> Geopolitics – multiple risks globally>> European Union – “Brexit,” Euro, and migration

On June 23, 2016, the Brexit risk was triggered as U.K. citizens voted by a 51.9% to 48.1% margin to leave the European Union (EU). With markets quaking (since recovered), the pound falling, and uncertainty spreading, the short-term impacts have been negative.

How it all shakes out over the longer term, of course, is anyone’s guess. There are more outcomes than can be imagined between a “soft-Brexit” scenario – where the U.K. is able to negotiate continued access to the EU’s single market – to a “hard-Brexit” possibility in which it no longer has these trade and related privileges.

DON’T FORGET WHAT WE DO KNOWIn times of uncertainty, it’s important to remember what we do know. Here are three points investors should keep in mind:

>> Politics aside, if the U.K. and EU want to achieve the broad-based prosperity necessary to make progress on employment, social mobility, fairness, and diversity, there should be mutual interest in finding a solution that allows for the free flow of capital and goods across borders.>> As a long-term, highly engaged form of investment, private equity is well-suited to adapt and take advantage of rapidly changing economic environments.>> Diversification across vintage year funds, regions, and industries has proven to be one of the best forms of risk mitigation across any age of uncertainty.

JULY 2016 | VOL. 2 page 2

Private Markets INSIGHTS

MEZZANINE CO-INVESTING Q&AWITH MANAGING DIRECTOR PETER LIPSON

What is HarbourVest’s experience with mezzanine investing and how does it fit with your other offerings, particularly co-investment?

Our history and pedigree lies in equity investing, but we began investing in mezzanine in 2003 as part of a carve-out to our Fund VII credit fund. Mezzanine lies in the middle of a company’s capital structure, between senior debt and common equity. We learned quickly that providing mezzanine was highly complementary to our direct co-investment equity business, particularly in terms of accessing and evaluating deals. So it was a logical step for us to underwrite the mezzanine in deals, particularly in the lower market where we are already looking at the equity, have numerous general partner (GP) relationships, and there is typically less competition.

What are the core benefits to investors, and why is HarbourVest best suited to be their mezzanine partner?

From an investor’s point of view, a co-investment mezzanine strategy can be highly rewarding because of the potential to generate both a healthy contractual return and an equity upside due to opportunistic investing — for example, providing acquisition or expansion capital, or being granted warrants.

Our key differentiator is our heavy equity orientation, which aligns us with the sponsor, makes us a more valued mezzanine partner, and has been a major driver behind our strong performance. Typically, for every $3 of mezzanine we invest $1 in equity, which is a very high ratio compared to other lenders. We also differentiate ourselves by being on the boards of the majority of our mezzanine investments. With equity at stake, we have a strong incentive to bring additional value and to be accommodating as possible.

For example, when a company experiences operational or financial issues, or trips a covenant, we are motivated to take a more proactive, constructive approach to finding a solution.

Another benefit to our strategy is the focus on the lower and lower-middle markets. Many limited partners (LPs) want exposure to the lower market because of the opportunity for outsized returns, but find it a difficult place to identify and evaluate GPs because of their sheer number. Our approach enables LPs to access a portfolio of companies in the lower market – across some of the very best GPs who invest in this area – and to do so via a differentiated mezzanine-equity strategy.

You have successfully executed numerous mezzanine investments since 2003. What are some of the key performance drivers?

Generally, there are two sources of outperformance, the first of which is extending the duration of our mezzanine paper. The problem with mezzanine is that it typically gets refinanced out within three years, which doesn’t help the gross-to-net spread in a fund with an eight to 10-year life span. Therefore, we work hard to extend the duration of our mezzanine paper, on average, to four years. We accomplish this by using our equity orientation and longer-term perspective to offer better pricing on lending and more flexibility around covenant terms. In return, the sponsor may agree to keep its mezzanine paper for a longer period of time instead of redeeming.

Secondly, and most importantly, HarbourVest’s returns are generated through our equity participation, which can be around 25% of the cost basis of a given investment at the start of an investment. As a trusted investor generally with a board seat, we are advantageously positioned to purchase additional equity through the life of the investment, which

could be through the purchase of equity on a secondary basis from other investors in the company, or through providing capital for a strategic acquisition. Our reputation as a reliable and flexible partner who can act quickly provides us with a valuable option to acquire additional equity opportunistically. Some of our mezzanine investments have ended up being 50% mezzanine/50% equity on a cost basis using this strategy. Mezzanine provides us an option – albeit one that pays a coupon and has a principal value – to really get to know a company, and our equity background allows us to nimbly add to our equity position when opportunities surface.

This is a very different strategy than most mezzanine lenders, who tend to have a credit background, are more focused on credit protection, and are often less accommodating to sponsors and companies.

How do broader lending and market dynamics influence your strategy?

In our view, the great appeal of HarbourVest’s mezzanine strategy is that it is conducive to both the near-term environment, which could see periodic dislocations in the credit market, and the longer-term environment, where pronouncements by the U.S. Federal Reserve indicate we are likely to see higher rates and credit tightening.

Today, with high deal-pricing multiples and debt-to-equity ratios, there is good reason to believe that the senior credit market is unlikely to get friendlier. In our view, any hiccup in the market will likely result in lenders stepping back, creating an even bigger funding gap for mezzanine paper to fill.

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Private Markets INSIGHTS

Two deals we were involved in recently took advantage of the credit market dislocation that took place in the U.S. earlier this year. HarbourVest was able to invest in high-quality senior secured lien loans with a cash coupon in excess of 10% by investing alongside a GP with whom we have a longstanding relationship.

In the longer term, if the lending market returns to some normalcy, interest rates move up, and leverage levels contract – as we expect – the funding gap will grow and mezzanine will become even more of a compelling opportunity. As attractive as either the short- or long-term scenarios look, they become even more so for lenders with an equity orientation like ours. Our close alignment with sponsors creates a more engaged, flexible, and accommodative partnership that is likely to ensure that the sponsor can ride out any short-term bumps and create value for its investors in the long run.

Is there a case study you could share that highlights your approach and capabilities?

Xpressdocs, a leading provider of direct marketing solutions, offers an excellent example of how HarbourVest’s mezzanine approach adds value to sponsor companies and secures attractive returns for investors.

As a fast-growing company in the lower market there was a clear equity upside in partnering with Xpressdocs. Our $5 million original investment was sourced through the primary investor, which we had partnered with on earlier deals. As an experienced investor in online print businesses, we were able to negotiate a board seat – and our expertise and involvement gave us the necessary insight and conviction to become a long-term investor in the company.

“Our close alignment with sponsors creates a more engaged, flexible, and accommodative partnership…” – Peter Lipson

Reflecting the value-add we provide, during the financial downturn HarbourVest converted the stricter payment terms into a flexible payment in kind structure to allow Xpressdocs to spend capital expenditures to drive future growth. We also led and structured a purchase of preferred shares on a secondary basis from a distressed shareholder. This enabled us to increase our equity participation by an additional $4 million and increase our ownership to 25% of the equity. We also offered variable pricing on the basis of leverage levels, which allowed our mezzanine paper to stay outstanding for seven years, with an average coupon above 11.5%.

Overall, Xpressdocs’ investors have fared very well. All of our loans have been repaid by the company, we have returned over 1x cost back to investors, and we recently received a $2.5 million equity dividend. Today, we own 25% of the company and our investment is valued at 3.6x cost, with this residual amount of equity representing a significant potential upside. The combination of being on the board, our equity orientation, and being a friendly mezzanine lender enabled us to increase our equity stake and allowed us to turn a typical lower market deal into a great success story.

1 The deal summary, general partner, and/or companies referenced within are intended for illustrative purposes only. While this is an actual investment in a HarbourVest portfolio, there is no guarantee it will be in a future portfolio.For additional legal and regulatory information please refer to www.harbourvest.com/important-legal-disclosures.

VALUE CREATION CASE STUDY1

COMPANY Xpressdocs

$0m

$10m

$20m

$30m

$40m

$50m

$60m

2015201420132012201120102009$0m

$10m

$20m

$30m

201520142013201220112010

� Revenue � EBITDA � Net Debt/EBITDA

5.2x3.4x

3.3x

2.0x

1.1x

0.5x

LOCATION U.S.INITIAL INVESTMENT July 2006INDUSTRY Technology/SoftwareSPONSORS Polaris Partners (Equity);

MCG (Mezzanine)INVESTMENT $9.5 millionSTATUS ActiveCOUPON 11.5% Cash / 2.5% PIKENTRY NET DEBT 4.6x

Senior 3.0xMezzanine 1.6x

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Private Markets INSIGHTS

SPOTLIGHT

ASIA PACIFICThis year marks the 20th anniversary of HarbourVest’s on-the-ground presence in Asia Pacific, which began with our Hong Kong office opening in 1996. Together with our newer offices in Beijing, Seoul, and Tokyo, we provide investors in the region access to more than 60 country funds and new managers, as well as secondary and co-investment opportunities. During those two decades, we have committed more than $4 billion in capital to locally based businesses. As Hong Kong-based Managing Director Hemal Mirani pointed out in her presentation at HarbourVest’s May annual meeting, the anniversary coincides with a strong rise in demand for private equity investments in the region. The following is a summary of her remarks.

REGIONAL TRENDSThe private equity business across Asia Pacific has grown and matured alongside the region’s dynamic economy, which has seen a culture of entrepreneurship and start-ups spread rapidly. Passive minority investments of the pre-2000 days are giving way to more controlled investments, while global managers are increasingly competing with regional and local managers.

While China’s powerhouse economy has shifted into a lower gear, its size and vibrancy still make it the envy of most countries. Today, China is the biggest e-commerce market in the world due in large part to the growth of local companies. Similarly, the rapid rate of digital adoption across other countries in Southeast Asia – including India, Indonesia, and the Philippines – is spurring new investment.

Australia, meanwhile, continues to boast one of the most resilient, developed economies in Asia Pacific as it has not experienced a recession in more than two decades and has achieved real GDP growth rate of 3.3% per year during that time. Momentum in the country’s service sector (business and consumer services, education, healthcare, and transportation) is expected to continue over the next few years and generate attractive investment opportunities.

“On a global basis, Asia Pacific is the fastest-growing private equity market in the world.” – Hemal Mirani

2015 HIGHLIGHTSOn a global basis, Asia Pacific is the fastest-growing private equity market in the world. Global fundraising has more than doubled over the last 10 years, and the region generated $37 billion in 2015 – just shy of its record-high set in 2014. Regional funds have steadily grown in popularity, accounting for the greatest share of capital raised over the past four years. By country, China was the lead engine (20% of the total), followed by India and Southeast Asia.CHART 1: PRIVATE EQUITY FUNDS RAISED

$0b

$10b

$20b

$30b

$40b

$50b KoreaJapan

Aus/NZSE AsiaIndia

China/HKRegional

’15’14’13’12’11’10’09’08Source: AVCJ, APER, EMPEA, supplemented by HarbourVest analysis of other activity in the market; China data excludes RMB funds

In terms of investment activity, Asia Pacific reached an all-time high of $51 billion last year – an increase of 28% from 2014 – with deals valued at over $1 billion dominating certain key markets, and strong co-investment activity reflecting investor appetite. China was home to most of the activity (40%), while India (24%) and Korea (21%) were active markets as well. The mobile/internet, consumer, retail, healthcare, and financial services sectors attracted much of the investment in China, while consumption and services drove deal flow in India.

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Private Markets INSIGHTS

CHART 2: TRANSACTION VALUE BY REGION

Source: AVCJ, APER, EMPEA, supplemented by HarbourVest analysis of other activity in the market; excludes investments by sovereign wealth funds, RMB funds and other non-PE financial investors.

The internet’s domination of deal activity was one of the bigger themes across Asia Pacific in 2015. As a percentage of investment cost, internet-related deals grew from 25% during the three-year period ending in 2014 to 48% – with consumer deals also showing a healthy increase (11% to 16%). In contrast, deals focused on financials, industrials, and services contracted.

In terms of deal pricing, Asia Pacific remains cheaper than the U.S. and Europe with a notable bifurcation of the market. Over the past three years, deal multiples have ratcheted up from 9.4x to 12.3x in developing “growth markets,” and have fallen from 8.3x to 7.6x in developed, buyout-focused markets.

Liquidity generation fell to $37.6 billion in 2015, slightly behind 2014 levels. At $8.8 billion, India more than doubled its overall exit value from the previous year and edged just above China. Trade sales continued to be robust in the developed markets (e.g., Australia, Japan, and Korea).

“As digital technology increasingly defines the daily routine of middle-class Asians, companies offering internet solutions are rapidly gaining in popularity.” – Hemal Mirani

CHART 3: PRIVATE EQUITY-BACKED EXITS

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KoreaJapan

Aus/NZSE AsiaIndia

China/HK

’15’14’13’12’11’10’09’08

Source: AVCJ, APER, EMPEA, supplemented by HarbourVest analysis of other activity in the market. Past performance is no guarantee of future returns. Includes IPO, Other Public Market, Trade Sale and Secondary exits; Excludes venture-backed IPOs

OUTLOOKGoing forward, the future for Asia Pacific looks bright. By 2025, the region will be home to 4 billion people, with important shifts in spending patterns and behaviors. Demographic changes, increases in discretionary income, and new consumption patterns will continue to boost growth. An evolving economic model in China, growth in the emerging markets of Southeast Asia and India, and continued stability in the developed markets of Asia should provide compelling investment opportunities.

For additional legal and regulatory information please refer to www.harbourvest.com/important-legal-disclosures.

$0b

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KoreaJapan

Aus/NZ

SE AsiaIndiaChina/HK

’15’14’13’12’11’10’09’08

JULY 2016 | VOL. 2 page 6

Private Markets INSIGHTS

IMPROVING GENDER DIVERSITY IN PRIVATE EQUITYINTERVIEW WITH MANAGING DIRECTOR KATHLEEN BACON

When it comes to gender diversity in asset management, the scales have long been tilted towards men. The gap is particularly wide in private equity, where women hold just 12.6% of all senior-level roles globally.1

HarbourVest Managing Director Kathleen Bacon has bucked the trend. Bacon joined HarbourVest in 1994, and has risen through the firm’s ranks to become one of its top investors and a member of its Investment Committee, which oversees more than $40 billion in capital commitments from institutional investors worldwide. She has been recognized by Dow Jones as one of the 100 most influential women in private equity, and is a founding member of Level 20, a London-based group of senior executives dedicated to improving gender diversity across the industry. Bacon explains some of the challenges in attracting women to private equity, what can be done to reach a better balance, and why now is the time to make gender diversity a top priority.

Why are there so few women working in senior private equity roles?

There are many factors, but we simply aren’t doing enough as an industry to attract women to private equity – and when they do choose to build a career with us, we’re not doing enough organizationally to keep them. One of our biggest hurdles is perception. When we go to college campuses to recruit talent, for example, we need to do a better job of selling what our industry is all about – using creativity and research to source the most attractive companies to invest into, and using finance, marketing, and relationship skills to fundamentally change and improve these companies. We also need to ensure that the individuals doing the recruiting reflect the diversity of that potential talent pool. So first and foremost, we need to do more to encourage women to self-select our industry. Another piece of the equation is retaining top talent. Organizations need to do a better job of instituting practices and policies that encourage a healthier work/life balance. These types of measures can go a long way toward retaining not just top female talent, but all talent.

Why is it so important for the industry to become more gender diverse?

Every business that wants to grow and succeed over the long term needs to constantly evolve to make sure it reflects the diverse world in which it operates. Right now, we’re not aligned with the fact that more women today are controlling

more of the world’s wealth than ever before. They are leading businesses and making important financial and investment decisions that affect millions of people every day. If our value-add is sourcing the best investment opportunities – and we don’t fully understand the needs and interests of our clients and investors – we’re already at a big disadvantage.

Beyond demographics, there’s also a strong business case to be made for increased diversity…

Absolutely. Many studies have shown that diversity among investment teams and senior decision-makers results in better, more well-informed decisions, and coincides with improved investment performance.2 Success in business isn’t just about mastering numbers and data; it’s also about being able to read people’s emotions and motives, and understanding what makes them tick. So having different perspectives is critical. Increased

FEMALE SENIOR EMPLOYEES AS A PROPORTION OF TOTAL BY FIRM LOCATION (2013 – 2016)

0%

5%

10%

15%

201620152014

2013

Rest of WorldNorth AmericaEuropeAsia

12.811.8 11.9 11.9

9.9 9.7 9.8 10.2 10.311.0

9.810.5

9.8 10.0 9.810.6

Source: Preqin, Women in Private Equity, March 2016

JULY 2016 | VOL. 2 page 7

Private Markets INSIGHTS

diversity also provides firms access to a broader pool of female talent and female-managed capital, and can lead to a more respectful, productive working environment. Importantly, LPs agree that gender diversity brings benefits. Nearly 60% believe PE firms would benefit generally from having more gender-diverse teams, with more than two-thirds saying team quality and dynamics would be improved as a result.3

HarbourVest has a long history of hiring and promoting women to serve in senior roles. Can you point to any best practices that stand out?

I’m proud of our track record in this area, and excited about what we can do going forward to make diversity even more top of mind. I was fortunate to join a meritocratic firm whose senior leaders made gender diversity a priority from the start, and who were always willing to advocate on behalf of myself and other women when performance justified promotions. This mindset has been in place since HarbourVest’s inception more than 30 years ago, and is reflected in the composition of our staff today. Nine of our 36 managing directors (25%) are women, and females hold 24% of our senior positions globally.

Our strong belief that diversity drives returns is further reflected in our recent acquisition of HarbourVest Horizon, which specializes in sourcing and investing in diverse and emerging managers. Through December 2015, one-third of the funds Horizon was invested in had one or more female partners. Backed by a strong historical track record, the team currently manages more than $1.9 billion in capital.

What other things can firms do to encourage more women to choose private equity as a career?

There needs to be more of an emphasis on active recruitment and internship programs, which allow candidates to “test drive” the industry and can ultimately lead to fulfilling, long-term careers. Organizationally and culturally, firms should develop internal female mentoring networks, so young women have role models to lean on for advice and guidance. And as I mentioned before, take a look at your policies to make sure they support the recruitment and retention of talented women. Blackstone recently extended its maternity leave from 12 weeks to 16 weeks – a small gesture that should make a big difference.

Last, there needs to be a cultural acceptance around allowing people the flexibility to tend to both their work and personal lives. Private equity can be a grueling business. When a deal is on, you need to be all in. But there are also moments when that intensity is lower, and just an appreciation that it’s okay to leave the office at 5, or to do board calls from home, would be a step in the right direction.

Can you tell us about your involvement with Level 20, and what the group is trying to achieve?

Sure. Level 20 is a group of senior, female PE professionals who believe strongly

that we can leverage our experiences and join forces with other industry leaders to attract, nurture, and promote more women in private equity. Our members represent both LPs and general partners, and work for leading firms like Bain, JPMorgan, and Pantheon. Since the problem is particularly acute in Europe, we’re focusing initially on working with European private equity leaders to drive greater gender diversity, both for the benefit of the industry and for the good diversity brings to any community. Our goal is to have women account for 20% of the senior roles in the industry by 2020.

1 Preqin, Women in Private Equity, March 20162 Credit Suisse, Women’s Positive Impact on Corporate Performance, September 2014 https://www.credit-suisse.com/articles/news-and-expertise/2014/09/en/womens-impact-on-corporate-performance-letting-the-data-speak.html3 World Economic Forum, Women in Private Equity: The Limited Partner Perspective, Briefing Note, March 2016http://www.collercapital/uploaded/documents/Publications/2014/Coller_Capital_Global_Barometer_-_Winter_2014.pdf

For additional legal and regulatory information please refer to www.harbourvest.com/important-legal-disclosures.

LP VIEWS ON THE AREAS WITHIN A GP THAT WOULD BENEFIT FROM GENDER DIVERSITY

0 10 20 30 40 50 60 70 80

Risk Management

Investor Relations

Governance

Team Dynamics

Team Quality

�% of Respondents

73%

68%

42%

41%

39%

Source: Coller Capital Global Barometer, Winter 2014

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Private Markets INSIGHTS

NEW RESEARCH & INSIGHTSTHE GLOBAL SECONDARY MARKET:A GROWING AND EVOLVING INVESTMENT OPPORTUNITY

As one of the early pioneers of the secondary market, HarbourVest is well positioned to take stock of what has become one of the industry’s most dynamic and fast-growing strategies. Liquidity, the strategic value secondaries can bring to general partners (GPs), and an abundance of investment opportunities are driving the market to new heights, with more than $40 billion in annual transaction volume and participation by hundreds of sellers.

THE GLOBAL SECONDARY MARKET: A Growing and Evolving Investment Opportunity

MAY 2016

This new report from our secondary team explores the trends and specific drivers fueling the market’s dramatic growth over the last decade, which include an increase in the turnover ratio of limited partnership interests, the broader acceptance of secondary investments as a portfolio management tool, and the increasing array of transactions that have resulted from investors’ desire for more liquidity in what is otherwise an illiquid asset class.

The report also examines the evolving nature of deal types, who’s buying and selling, pricing trends, and the greater role being played by GPs. On the latter point, GP-led whole fund liquidity solutions are one of the faster-growing, more complex sub-sets of the market. Our team points to the following con-siderations that can help ensure that these types of deals meet the needs of sellers, buyers, and GPs:

>> Manager quality – Has the GP successfully raised a new pool of capital in the last five years? If not, what is the confidence level in the current team’s ability to raise capital in the future?

>> Asset quality – What is the current profile of the underlying portfolio, including operating performance, capitalization, and risk? What are the prospects and expected timing for portfolio company exits?

>> LP/GP alignment – Are the fund’s original economic and governance provisions providing an appropriate alignment of interests between the LPs and GP today, or would all parties benefit from changes to the original fund terms in order to improve the alignment of interests?

>> Pricing/seller appetite – What is the profile of the LP base, and are LPs interested in a liquidity option at a price that will deliver an attractive return to the buyer?

>> Structure – What is the optimal structure for offering LPs both liquidity and status quo options? Will LPs be offered the opportunity to sell their interests, or will the fund be offered the opportunity to sell its underlying companies? Will new capital be made available to the GP?

Looking ahead, we expect the global secondary market to continue to grow in both size and complexity given the growth in the global PE market, the value institutional investors place on liquidity, and the continued introduction of innovative liquidity solutions.

MARKET GROWTH FUELED BY GROWING PRIMARY MARKET

0

200

400

600

800

1,000

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’15’14’13’12’11’10’09’08’07’06’05

19% CAGR

� Secondary Market Deal Volume � PE NAV > 5 years old

Source: Thomson Reuters; Cogent Partners

JULY 2016 | VOL. 2 page 9

Private Markets INSIGHTS

THE BASICS OF PRIVATE EQUITY PORTFOLIO CONSTRUCTION

The long-term outperformance of private equity over public indices is encouraging institutional investors to increase their allocations and new investors to enter the asset class. A well-constructed portfolio of different strategies can help investors achieve attractive returns and diversification, but where do you begin?

During a recent webcast, managing directors Aris Hatch and Greg Stento shared their extensive experience as they outlined a four-step process for building a private markets portfolio that is aligned with an investor’s specific investment goals and constraints:

>> Program allocation and strategy – investors should start by taking stock of their goals (e.g., return targets) and constraints (e.g., cash flow and liquidity needs), and how incorporating growth, value, and yield-oriented investments can help achieve their objectives.

>> Portfolio construction – using the core portfolio building blocks of primary, secondary, and direct co-investment strategies – each of which play a distinct role in a diversified portfolio – investors can build a program that meets their cash flow objectives over time.

>> Top down, bottom up analysis – in the process of considering strategies and managers, investors should examine economic, industry, and regional dynamics, and conduct rigorous analysis of alternative managers.

>> Oversight and monitoring – this isn’t a passive exercise. Active management is required, with an ongoing focus on ensuring good GP relationships, cash management, valuations, investment monitoring, reporting, and compliance and tax oversight.

To further illustrate the process of sound portfolio construction, the presenters shared a case study involving a large U.S. public pension plan which incrementally increased its private equity exposure over a 10-year span. Along the way, the pension plan utilized outside consultants, commingled funds, and separately managed accounts to bring its exposure from 2% in 2004 to 8% in 2014, and ultimately generated a return on its private equity investments that exceeded its total plan return by 500 basis points.

HYPOTHETICAL ASSET ALLOCATION

Sp

ecial Situatio

ns5-7%

Real Assets Secondaries5-7%

EM

ex

Asi

a3-

5%

Global Venture/Growth3-5%

U.S. Venture5-10%

China5-10%

Asia ex China5-10%

Global Co-Invest10-15%

U.S. Buyout15-20%

European Buyout15-20%

GlobalSecondaries

10-15%

Core(80%)

Tactical (20%)

The webcast concluded with a look at some common pitfalls we’ve seen during our more than 30 years of helping investors construct private equity portfolios, including:

>> Failing to take a long-term (patient) perspective

>> Not thinking clearly about reaching target exposure through an over-commitment strategy

>> Not taking into account J-curve mitigation strategies

>> Trying to time the market

>> Investing with too many managers

>> Being too tactical in constructing the portfolio

>> Not taking into account the cost of staff turnover

A replay of the webcast is available here.

“Private equity is an asset class with a lot of moving parts, and it requires a major commitment to operations and infrastructure to be successful.” – Greg Stento

For illustrative purposes only. Actual portfolio allocation will be based on available market opportunities during a portfolio’s investment period.

For additional legal and regulatory information please refer to www.harbourvest.com/important-legal-disclosures.