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Case Study: Complementing a general partner’s investment expertise and network

Cambridge Associates

Shannon MacArthur created her family’s wealth as a general partner (GP) of a venture capital (VC) firm. As she neared the end of her career, she started thinking about a long-term plan for her family’s wealth.

CLIENT BRIEF

  • Client: The MacArthur family
  • Source of wealth: General partner at a venture capital firm
  • Situation: Seeking an investment firm to put an organized plan around the family’s assets
  • CA relationship: Non-discretionary portfolio management

Shannon felt that a disciplined asset allocation process could enhance the quality of her personal investment portfolio, which lacked a clear strategy and structure because she hadn’t had time to approach it systematically. At the time, she was still an active GP and managed her own private allocation. However, she anticipated winding down her role with the VC firm in the next few years, at which point she might ultimately need a sounding board and support for private investing. Her assets were in two pools, one for her and the other a trust for her adult children and their families.

As a GP, Shannon was familiar with CA’s investment approach, especially the rigor of its due diligence processes. She also knew CA from her participation on the board of a local museum that CA advised. She initially came to Cambridge Associates seeking oversight of her public investment portfolio, which she had previously managed on her own.

CLIENT NEEDS

Shannon was looking for an investment firm with:

  • Thoughtful strategy and asset allocation guidance: An approach that would help achieve the family’s portfolio growth goals over time
  • Private investing depth: Global experience and skill in private investments, and exposure to networks of general and limited partners that could complement her own relationships
  • A sophisticated and flexible service approach: A relationship that could change to meet the needs of her portfolio as it evolves over time
  • Experience working with GPs as clients: A team that aligned with her status as a sophisticated investor, understood her strengths, and could augment in areas less familiar to her

SOLUTION

As part of CA’s Family Enterprise Review, Jeremy, the investment director overseeing Shannon’s dedicated CA team, conducted an analysis of the family’s current investment holdings and cash flow needs[1].

Reviewing the existing portfolios, Jeremy noticed that the holdings and asset allocations of the two portfolios were not well aligned with the family’s risk-return goals. Shannon’s portfolio was overweight in cash and fixed income, and the equity allocation was overly tilted toward US large-cap companies. The family’s trust was also overly conservative, given the long-term time horizon of this multi-generational portfolio. Shannon’s team at CA made recommendations for a growth-oriented asset allocation and institutional-quality liquid investment managers (equity, fixed income and hedge funds) to implement the portfolio strategy. As Shannon chose to have a non-discretionary relationship with CA, she had input and final say on all portfolio decisions.

 

After several years, Shannon began to withdraw from day-to-day management of the VC firm, and wished to build a broader private investment portfolio to take advantage of her greater liquidity. She asked CA to act as her advisor in this new chapter. Although she retained positions in funds with her VC firm, she sought to expand her private portfolio across sectors geographies, and stages. Through her own network–built over many years in the industry–Shannon had access to opportunities of which she had extensive knowledge. However, she looked to CA for insights into investments, including rigorous due diligence, where she had less exposure.

As the relationship was expanding to focus more on private investing, Jeremy added a private investment specialist, Beth, to the team. Beth helped Shannon think strategically about her goals for her private investment portfolio, how private investing fit into her overall portfolio strategy, and how to diversify her investments in a thoughtful and deliberate manner. Further, Beth provided insights into commitment, pacing, expectations for distributions, and cash flow modeling, which gave the portfolio a better foundation for new opportunities.

Beth suggested investments that complemented those available through Shannon’s network and that aligned with the goals of the portfolio. In doing so, she was able to introduce Shannon to GPs and investment opportunities outside of Shannon’s own sphere, and provide the due diligence needed to make informed investment decisions.

OUTCOME

Shannon feels confident in her overall portfolio strategy, including the total asset allocation framework. As the strategy expanded to include private investments, Jeremy, Beth and Shannon communicate frequently, with many discussions tied to fundraising cycles and new opportunities.

This narrative has been fictionalized to ensure anonymity, but is based on actual client work.

[1] For more information on Cambridge Associates’ Family Enterprise Review, refer to Portfolio Construction: A Blueprint for Private Families.