PCM has been investing in private equity funds since the early 1990s and over that time has developed a process and strategy that has led to strong performance in its primary funds of funds. While manager selection is essential for investment success, PCM believes its portfolio construction strategy also contributes to the success of PCM’s primary business. The following represent the key elements of PCM’s primary fund of funds strategy:

Focus on small to mid-sized funds: PCM believes that smaller funds enjoy a higher potential for outsized returns than exists for larger funds.

Focus on core managers: PCM provides access to proven managers with stable teams and demonstrable track records over multiple fund generations.

Emerging manager allocation: Many private equity firms have shown their strongest performance in early generation funds, and PCM also seeks to enhance performance by identifying emerging managers, including experienced professionals who spin off from established firms or team up with other talented professionals to form a new team.

Secondary market component: PCM has consistently included a secondary market component in its primary funds. Secondaries can provide important portfolio benefits, including: i) vintage year diversification, ii) earlier returns of capital, iii) mitigation of blind pool risk, and iv) enhanced return prospects (through the potential to purchase at discounts to intrinsic value, shorter holding periods, and by avoiding the fees and any losses that are incurred early in the fund’s life).

Lower risk through diversification: Individual industry sectors, transaction types, and investment stages cycle through periods of unusual outperformance and underperformance as economic/market conditions and investor sentiment vary over time. PCM’s strategy of diversification among high quality independent managers with varying strategies and industry focuses mitigates this cyclical dynamic.

Customizable: PCM recognizes that many private equity investors have specific allocation needs for their portfolios. PCM’s primary funds of funds, therefore, are structured to allow limited partners to choose their own allocations between buyout and venture capital.