Essay About Оðonew Nameð And Year Fund

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Types of PE: venture-extensive technology risk, vast business/investment upside from operating leverage, high failure rate, 3-4 yr is the typical return. Growth- established but not large mature co. 4-7 Buyout- limited technology risk, limited business upside create a need for financial leverage, generally lower failure rate, need to create risk to get better returns, debt, 2-5 yrs (Hertz). Typical 10 year Fund: invest- ÐÐŽÐonew nameÐЎб investment during first three years, often some follow-on investment, generally 10-30 portfolio co. Manage- 3-6 yrs, watch companies Harvest- IPOs, sales to ÐÐŽÐostrategicÐЎб (looking for something better) or ÐÐŽÐofinancialÐЎб (interested in returns) buyers, recapitalization or dividends. GP-recruit investors, screen and make investments, manage portfolio; usually 2-10 people, horizontal. LP- long-term investors who value higher returns over lower risk over liquidity. Valuation: $25 invested in co. valued at $15. post valuation=inv+pre=$40. fund ownership = inv/post=62.5%. so fund receives 62.5% of companyÐÐŽÐЇs eventual value.

Carry: (proceeds-calls = profit)*20%. Gross Return Multiple(GRM): proceeds/investment. Net Return Multiple(NRM): distributions/calls. Gross CF: proceeds-investment. Net CF: Distribution-calls. Fees: % of fund size. Rules of Thumb: net is always less then gross, in PE fund net is typically ÐЁДâ„- – 1/3 less than gross, target multiples are roughly 3X and 2X, target IRRs are roughly 30% and 20%, with GRM and NRM fees and time factor affects multiple so could be misleading. Conservative carry: only take carry after proceeds exceed fund size. Aggressive carry: allocate fund size proportionate to invested capital.

Ex.1 $12m PE fund, single $10investment, 5yrs,2-20 fee schedule. Find distributions and IRRs with diff. proceeds.
Limited Partners
Capital calls
General Partner
Investment
Portfolio Companies
ÐЎД¦
ÐЎД¦
ÐЎД§
ÐЎД§
Distribution
Carry
Proceeds
Fees: 12m*.02=.24*5=1.2 total
GRM: 20/10=2X, 30/10=3, 100/10=10
18.24
26.24 3.76
82.24 17.76 100 *if limited partners are guaranteed a 2X return on their capital before the GP begins receiving their 20% carry then instead of the called capital of $11.2, it is 20% of the difference between proceeds and twice called capital which is $22.4. ex. at 30, (30-22.4).2=1.52 so 30-1.52=28.48 distr.

Ex. 2 $165 invest+ $42(fees) =$207call, 165*3=$495-207*.20=57.6, 495-57.6=$437.4 distribution. NRM= 437.4/207=2.11 * if LPs could earn more than 2.11X on direct investments, they would do better without GPs.

Calls
Proceeds
carry
Cons. Carry
Aggr. Carry
Dist.
121.25
119.25
21.25
108.75
106.75
11.25
33.75
31.75
43.25
43.25
Ex. 3
a.What is the fundÐÐŽÐЇs gross return multiple? 230/80=2.875 b. What is the fundÐÐŽÐЇs gross IRR? 22%(use GCF