How did Future Plans IC adjust the PE programmes mandate following the major strategy review, and what did they hope to achieve with these changes?

A major strategy review concluded that Future Plans current programme was too narrow: investing solely in primary fund offerings via closed-end FoFs did not provide the flexibility to capitalize on opportunities in the market. To be more nimble, Future Plan decided to broaden its mandate with its external managers so that they could act on opportunities as they arose. With its focus on primary PE funds offerings (via the FoFs), Future Plan had so far overlooked two strategic tools to more proactively manage its allocation to the asset class, namely secondary and direct investments. Purchasing LP interests in existing PE funds on the secondaries market would provide exposure to funds with more mature portfolios, accelerating NAV development and providing higher visibility than a primary fund commitment (Exhibits 8a and 8b). Direct investments, including co-investments, would eliminate any lag or ambiguity regarding a Future Plan investment (Exhibit 8c), as capital would flow directly into the shares of a PE-backed company with the additional benefit of eliminating the fees associated with a typical PE fund. Looking for a manager with the capability to execute on both strategies was the declared goal. Incorporating secondary and direct investments into its portfolio was not without risk, however. Unlike primary fund offerings, secondaries and directs were decidedly transactional: while PE firms first pre-marketed and then formally marketed a primary fund offering over one to two years, secondary and direct opportunities were unpredictable and required the ability to assess complex transactions within months or even weeks. Managers executing such transactions therefore required a different skill-set to that of a team with experience investing in primary funds. Direct investments also presented a risk profile that differed from primary and secondary fund investments, as Thomas noted: We didnt want our portfolio to be too concentrated in a single vintage year, and with direct investments the investment of capital is less gradual: managers invest in deals over a few vintage years, and thats it. We were also wary of information asymmetries in the context of co-investments, and that managers often only offered a co-investment for deals that were too large for their main funds... thus outside of their comfort zone. In mid-2010, Future Plan made fresh commitments to Bellex Capital and Arkridge Capital. However, rather than closed-end fund vehicles,

Future Plan committed capital to separately managed accounts (SMAs) and extended each managers mandate to invest across primaries, secondaries and directs. However, as Bellex and Arkridge were only just expanding into secondaries and directs, the majority of the capital deployed via these accounts was expected to flow into primary fund offerings. To gain immediate exposure to secondaries and directs, Future Plan would need an additional manager. Thomas led the search for a manager with an established track record in secondary and direct investment as well as primaries. Partners Group was one of the first firms Thomas contacted as he had built a relationship over the years with Robert Lustenberger, a senior client relationship manager who looked after Partners Groups Swiss pension fund relationships. They first met in 2002 and had remained in touch through various investment conferences. Robert had been a source of support in the challenging post-crisis environment, sharing information and helping Thomas understand the finer points of PE. His input had opened Future Plans eyes to the idea of broadening (rather than cancelling) its PE mandate. Ten other managers (in addition to Partners Group) responded to Future Plans initial Request For Information (RFI) in the search for ideas on how to address the challenges in its PE portfolio. After a two-month screening process, the group was narrowed down to six managers, who were invited to respond to a more detailed Request For Proposal (RFP), providing background information on their track record and proposed solution. Robert described Partners Groups approach to the RFP: The RFP was an important step for us. In the proposal we highlighted the challenges Future Plan faced and described how we would help them reach their goals. We explained how Partners Group's multi-asset class and integrated 'relative value' approach to private markets provided the flexibility to invest in the strategy presenting the best opportunity for our clients at any given time. We particularly highlighted that including direct and secondary investments in the portfolio would result in lower fees compared to a traditional FoF given the absence of the double-fee layer. We also demonstrated how we could support Future Plan beyond investment management, with our suite of client services including portfolio management and best-in-class reporting. From the pool of six, two providers were shortlisted to make a final presentation for the mandate: Partners Group and another well respected firm in the sector. In August 2011, members of Future Plans IC were invited to Partners Group's headquarters in Zug for a full- day in-house due diligence session. As Robert recalled, the focus at this point was to share Partners Groups current view of the market (see Exhibit 9) and its experience: We showed the potential partners our general investment strategy for the next two years. We explained the secondary and direct side, which at the time were very attractive as many LPs were looking to sell existing stakes in private equity funds. We then showed them how we would continue to manage the allocation over time and provided examples of how we had built up other clients portfolios over a short period of time. Robert also presented a solution to address the administrative burden presented by Future Plans PE portfolio: an innovative holding structure that would consolidate all of their PE investments in a single offshore entity (see Exhibit 10). As part of the proposition, Partners Group offered to administrate the holding company for Future Plan and manage cash flows to and from its existing PE fund, FoFs and SMAs; Future Plan would only need to meet capital calls from the holding company.

Reporting would also be simplified, as the NAV of its entire PE programme would be consolidated into a single line on the balance sheet. Furthermore, capital calls could be netted by capital distributions at the holding company level, thus reducing Future Plans tax bill. The presentation included Partners Group's provision of investment-level steering on future commitment decisions for Future Plans entire PE allocation, aided by consolidated statements from the holding structure. This would be exclusively in the form of advice, the final decision remaining with the IC. While a specific commitment plan was not shared during the meeting, Robert described in broad strokes how Partners Groups Portfolio & Risk Management team engaged with clients to help them achieve their target allocation to PE. Impressed with the findings of its first in-house due diligence, Future Plan scheduled a second meeting on 3rd December 2011. In addition to Alfred Gantner, one of Partner Groups Founding Partners, the group heads of Private Equity Directs & Primaries, Real Estate, Infrastructure, and Portfolio & Risk Management would attend the meeting. Crucial to Partners Group's proposition was a robust strategy that would enable Future Plan to hit its target allocation to PE by year-end 2014. While the holding company structure was the icing on the cake, Michael Studer and his team still had to bake the cake.