The financial model offers a comprehensive set of assumptions used for fundraising by a PE fund. It provides a detailed analysis of fund cashflows flowing from LP contributions to portfolio investments and back to LP in accordance with the waterfall distribution assumptions. The J-curve on net LP cashflows along with key PE ratios such as Value of Fund, Portfolio NAV, TVPI, DPI, Gross/Net MOIC, Gross/Net IRR, etc. is also presented in the Dashboard.
1. Input/Assumptions: The model has inputs at the fund level including equity contributions, debt ratio, fund life, commitment period, fund expenses, hurdle rate, and investor-wise management fees, promote structure, etc. Along with these assumptions, a capital drawdown schedule is also provided to track the timeline of investments during the commitment period. Moreover, there are specific assumptions provided for availing debt and also the returns to be generated from each portfolio investment and its holding period.
2. Performance Metrics: Once the inputs are established, the model presents the output in form of various performance metrics for each LP and the GP as well. Portfolio level returns are also presented both in nominals and IRR/Cash on Cash Multiples. Fund level performance charts are also provided along with key fund ratios.
3. Fund Cashflows: It tracks total capital contributions (derived from each LP capital and debt principal) and the take-outs in form of fees, expenses, and transaction fees. The net remains (or net invested capital) is then invested in portfolio investments. Portfolio cashflows are provided for each individual investment as well along with the NAV calculation. The cash inflow from the portfolio is first used to pay off scheduled debt payments (interest and principal) then fees and expenses. The remaining cashflows are used for waterfall distributions based on hurdle, catch-up, and carry assumptions between LP and GP. A summary of gross and net returns at the fund level is also provided at the end.
4. LP Cashflows: The model has 4 categories of LP investors with each having different terms for fees (both during and post commitment period), investment amount, catch-up eligibility and ratio, and carried interest ratio. Contributions, take-outs, investments, and distributions for each class of investor are tracked separately to analyze their cashflows. Thereafter, a summary of gross and net returns is presented at the end.
5. GP Cashflows: GP as LP cashflows are treated similar to LP cashflows. Additionally, the fees and carried interest earned by GP are added to their cashflows for their returns.
6. Debt: A debt schedule is also provided based on moratorium and tenure assumptions.
7. Index: An index sheet is available to navigate through the model easily.
1. 10-year fund life with extension option available for up to 3 years (10+3). Fund life can be set to less than 10 years as well.
2. Investment holding period is dependent on the commitment period and total fund life to avoid no-activity years. For instance, if the fund life is 10 years and the commitment period is 5 years then the holding period will be 5 years to receive the final exit in the 10th year. Reinvestments option is not provided in the model but can be made available on request.
3. Debt is assumed at 40% of the total fund size. It can be set to 0% as well.
4. Each debt tranche is assumed to mature or be paid in full with respective portfolio investment exits. If there are negative cashflows after debt payments then equity distributions will be held off and paid in cumulative in future periods.
5. LP Categories also include GP as LP (IM’s contribution).
6. Fees are calculated on cumulative contributions during the commitment period and then on net invested capital post commitment period.
7. Annual fund expenses (fund operations) are calculated on total fund size.
8. The model is based on the European waterfall method. American structure (deal-by-deal) can be made available on request. The claw-back option is also not available and can be added on request.
The model can be used as a template by any private equity firm raising funds and looking at portfolio investments. The model is detailed and covers all the relevant concepts used in private equity cash flow models.
Please let me 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 the US looking to analyze fund cashflows. You may reach us for any other type of modeling request as well including but not limited to LBOs, DCF, Real Estate PE, sector-specific company models, etc. Please contact us at [email protected]