A risk model for private business.

Hi, this is Chip Castille, and this is Salience.

Salience is a risk model for private business. That's eight words, but a lot of information. We're going to unpack that into four questions and answers in the next three and a half minutes.

So what is risk and what is a risk model? And why now do I need a risk model? Who is Salience for and how do they benefit? What makes Salience different?

Risk is just a measured amount of uncertainty. It's the likely range of outcomes around a forecast.

A risk model is a tool that measures risk in a company, a security, or a portfolio.

So why do we need a risk model now? Well, the amount of money investing in private equities is growing rapidly. It's estimated to double in size over the next three years. Understanding the risk in these investments will become critical as they become a larger part of investor portfolios.

Salience is for anyone who owns, or invests, works with private companies. This includes general partners managing private equity portfolios, limited partners investing in private equity, founders, operators, and management consultants. All of them could benefit from managing the risk of private companies.

General partners can use Salience to manage company and portfolio risk, and they'll get a higher quality of earnings as a result, and that will allow them to also talk to their institutional clients in the language of investing, which is risk-adjusted return.

Limited partners get a dashboard view across all of their private equity exposures. They can see the hotspots and compare them to asset classes in the rest of their portfolio.

Founders and operators can use Salience to identify sources of risk, reduce them, and then increase company value by increasing the quality of earnings.

With Salience, management consultants get an executable value creation roadmap right out of the box. This shortens engagements and delivers measurable results.

All of these benefits are possible because Salience is a different kind of risk model. Most risk models work on a history of prices. They observe risk after it's been created. But private companies don't have a history of prices, so we can't observe their risk. We need a different approach.

Salience is built on the idea that risk really doesn't originate in observed prices. It originates in the activities of a business. Did sales hit or miss? What about expenses? How about working capital? Did receivables arrive on time? Salience works with a small set of operational data that's readily available at any company, and it gives you the risk of your revenues, earnings, valuation, and the operating cash flow.

Because Salience measures risk from operational activities, it becomes a roadmap for how to reduce earnings risk, which we all know as quality of earnings. Other things being equal, a business with higher quality of earnings is worth more. Only Salience can provide this level of insight into how risk originates and then propagates through your business and your portfolio.

Want to learn more? Visit castillelabs.net/salience.