Model Overview
The model provides a comprehensive framework to assess investment performance using key financial metrics such as Gross and Net Internal Rate of Return (IRR), Gross and Net Multiple on Invested Capital (MOIC), Total Value to Paid-In Capital (TVPI), and Distributions to Paid-In Capital (DPI). The model is available in both the American (American waterfall version is available on request) and European Waterfall distribution structures for allocating fund profits between LPs and GPs. It provides the output in both quarterly and annual format.
This model is useful for private equity professionals, institutional investors, and financial analysts looking to evaluate different fund structures, simulate investment scenarios, and determine the impact of various assumptions on fund performance.
Model Structure & Components
This section outlines how the model is organized, detailing its main components—inputs, processing/calculations, and outputs—while clarifying the critical elements that drive analysis.
1 Input Parameters: All fundamental assumptions are centralized in dedicated worksheets-
• Fund Assumptions:
o Fund Start Date, Fund Size (in any currency)
o Equity and Debt Components with debt interest rate, moratorium and maturity (aligned with portfolio timelines)
o Commitment / Investment Period, and Fund Life (based on portfolio timelines)
o Discount Rate, Fund Expenses (setup, recurring and transaction fees), and Tax Rate
• Investor (LP) and GP Assumptions:
o LP and GP Capital Commitments
o Management Fees (during commitment and exit periods)
o Hurdle Rate (preferred return), Catch-up Provisions, and Carried Interest
• Investment & Capital Drawdown Assumptions:
o Portfolio distribution including individual deal amounts, investment and exit dates – defining the capital drawdown schedule (split into equity and debt)
o Dividend Yields and Expected Exit Multiples
• GP Overheads Assumptions:
o Operating Expenses split into people and non-people expenses along with growth rates and other relevant parameters
2 Processing & Calculation Modules: The model processes data through interconnected modules-
• LP & GP Schedules: Calculate quarterly drawdowns, allocations to fees, expenses and portfolio, distributions (including the allocation of hurdle returns, catch-up, and carried interest).
• Debt Schedule: A dedicated debt schedule detailing drawdown, interest payments, and repayments.
• Portfolio Schedule: Investment-level tracking including cash inflows (dividends, exit proceeds) and outflows (investment costs).
• Fund Cash flows: Summarising the total capital contributions, deal-wise investment deployments and proceeds, fee and expense retentions, and debt servicing.
3 Output Modules: Key outputs are generated once the inputs are processed-
• Performance Metrics:
o Calculation of Gross/Net IRR, MOIC, TVPI, and DPI
o Net Asset Value (NAV) projections reflecting the current value of remaining investments
• Visualizations & Charts:
o Graphical representations of fund contributions versus distributions, J-curve effects, and performance ratios at each stakeholder level
• Summary Reports:
o Consolidated views for LPs and GPs, showing cash flow timelines and distribution schedules.
Flow of the Model
The model’s workflow follows a logical sequence:
1 Capital Commitments: LPs and GPs input their committed capital and related assumptions.
2 Investment Phase: Capital is drawn down according to the predetermined schedule of individual investments. At each drawdown period, the capital is first allocated towards required fees and expenses and then the remaining amount is invested into the portfolio as per the deal amount assumptions.
3 Portfolio Management: Investments generate cash inflows (dividends and eventual exit proceeds).
4 Debt Servicing: If applicable, the model accounts for debt drawdowns, interest payments, and principal repayments from portfolio proceeds.
5 Exit & Distribution: As investments are divested, proceeds are first used to pay for fees and expenses and then the remaining portion is distributed following the established waterfall (with hurdle rates, catch-up provisions, and carried interest).
6 Performance Evaluation: The model aggregates data to compute key fund performance metrics and visual summaries.
Key Concepts
The model is built on core private equity principles:
1 Waterfall Structures:
o European Waterfall: GPs do not receive carried interest until all of the LPs’ capital contributions including unrealised investments have been recovered and their preferred rate of return has been reached.
o American Waterfall (available on request) : Incorporates a deal-by-deal structure where the GPs receive carried interest from individual investments in the fund before LPs are made whole.
2 J-Curve Effect: Demonstrates initial negative cash flows (early-stage investments and fees) that transition into positive returns as the fund matures.
3 Key Performance Ratios:
o MOIC, TVPI, DPI: Provide insight into the fund’s profitability and liquidity.
o IRR and NAV: Reflect the time value of money and current valuation of investments, respectively.
User Guidance
To effectively use the model:
1 Populate Input Sheets: Begin by entering fund, investor, debt and portfolio parameters. Ensure all mandatory fields are completed to avoid calculation errors.
2 Review the Instructions & Definitions: The model includes an “Instruction” page that guide users through its structure along with references to specific input and output areas. There is also a page “Definitions” which explains all the relevant concepts used in the model along with their calculation basis.
3 Analyze Outputs: Navigate through the dashboards, performance metrics, and charts to understand cash flows, distributions, and overall fund performance.
4 Run Sensitivity Scenarios: Adjust key variables to evaluate different outcomes and assess risk profiles.
Support
For further assistance or customization requests:
1 Contact Support: Please let us know if you need specific modifications in the model or place a customized request. We have provided our services to various clients, especially, the fund managers based out of Europe and US looking to analyze fund cashflows. You may reach us for any other type of modelling request as well including but not limited to LBOs, DCF, Real Estate PE, sector-specific company models, etc. Please contact us at [email protected]
2 Documentation & Tutorials: Refer to the included instruction manual and on-screen guidance for additional details on using the model effectively.
