Private Equity - IRR & Carried Interest first, only, interest, receives, capital

dvilayphet

Could someone please explain to me, how the Gross and Net IRR Figures on page 77 of Reading 49 are calculated.
Also, in example in Section 4 of this Reading 49, it says, that the Carried Interest is calculated based on the total return method and on the first alternative of this method (GP receives only carried interest if fund has returned entire committed capital to LPs). Looking at the calculation on page 76, carried interest is paid when NAV exceeds committed capital. Is that correct?
Many thanks for your last minute help.

ishfaque

Its confusing. Gross IRR & Net IRR are based off Y/E cash flows. Notice in year 2000 Cash flow is -50 (assuming as of Dec, 31st) and Cash flows on pg. 76 are 50 called down in 2001 (assuming Jan 1st).
C/F (year end)
2000: (50) called down capital
2001: (15) called down capital and (5) loss from pervious year
2002: (10) called down capital and (15) loss from previous year
2003: (25) called down capital and +25 profit from previous year
…
Net IRR you also would subtract mgmt fee’s:
C/F (year end)
2000: (50) called down capital
2001: (15) called down capital and (5) loss from pervious year and (1) management fee
2002: (10) called down capital and (15) loss from previous year and (1.3) management fee
2003: (25) called down capital and +25 profit from previous year and (1.5) management fee
…

disiz64

Comfortably Skipped!
If it comes on exam, I’ll guess it. And you’ll solve it.
Chances of both of us getting it right will still be 1/3.
Good luck.

HuskyGrad2010

Pepp talk if that question shows up on game day I’ll be getting the point.

laurab

There was an entire PE vignette last year that I bombed.

chunty

I hope failing or passing AI, does not mean the difference between pass and fail for the exam.
cuz if i were to study AI, i surely won’t be able to study FRA, and I’ll surely fail.

eoin

3 things u need to know in AI.
1. Real estate (yearly after tax cash flows, after tax equity reversion, valuation ratios & methods)
2. Private Equity structures (PIC, DPI, RVPI, TVPI)
3. Venture Capital valuations (pre/post - 1&2 round)

spreads

Many thanks for the IRR explanation, it is a bit confusing.
Regarding my second questions, any thoughts?
Also, in example in Section 4 of this Reading 49, it says, that the Carried Interest is calculated based on the total return method and on the first alternative of this method (GP receives only carried interest if fund has returned entire committed capital to LPs). Looking at the calculation on page 76, carried interest is paid when NAV exceeds committed capital. Is that correct?
Cheers.