CAIA - 13 - Management of Liquidity

Question 1

Modeling cash flows of PE investments is essential for liquidity management and may provide some advantages:

1. Improving ___ ___for undrawn capital
2. Increasing the PE allocation’s profit using an ___-___strategy
3. Calculating an ___ ___when a discount rate is available
4. Monitoring a portfolio of PE funds’ ___ ___and ___-___ profiles

Answer 1

Modeling cash flows of PE investments is essential for liquidity management and may provide some advantages:

1. Improving investment returns for undrawn capital
2. Increasing the PE allocation’s profit using an over-commitment strategy
3. Calculating an economic value when a discount rate is available
4. Monitoring a portfolio of PE funds’ cash flows and risk-return profiles

Question 2

___ ___is illiquidity that is inherent in an investment’s terms

Answer 2

Structural illiquidity is illiquidity that is inherent in an investment’s terms

Question 3

___ ___is illiquidity resulting from market conditions

Answer 3

Cyclical illiquidity is illiquidity resulting from market conditions

Question 4

There are 2 reasons LPs experience liquidity issues

1. Using an ___-___strategy
2. Using a ___-___strategy

Answer 4

There are 2 reasons LPs experience liquidity issues

1. Using an over-commitment strategy
2. Using a self-funding strategy

Question 5

A ___-___strategy involves LPs using distributions from mature PE funds to finance capital calls from young PE funds.

Answer 5

A self-funding strategy involves LPs using distributions from mature PE funds to finance capital calls from young PE funds.

Question 6

___ ___ is the risk that LPs are unable to redeem or liquidate their investments when they want to or they have to sell their investments at depressed prices.

Answer 6

Exit risk is the risk that LPs are unable to redeem or liquidate their investments when they want to or they have to sell their investments at depressed prices.

Question 7

For US and European venture capital, most capital is called between years ___ and ___of the fund’s life.

Answer 7

For US and European venture capital, most capital is called between years one and five of the fund’s life.

Question 8

After the fund’s investments have matured and increased in value, the fund enters the ___ ___.

Answer 8

After the fund’s investments have matured and increased in value, the fund enters the harvesting period.

Question 9

Most distributions of VC funds occur after year ___.

Answer 9

Most distributions of VC funds occur after year six.

Question 10

___ ___are short-and medium-term lines of credit from external sources that LPs can use to meet capital calls when they run out of cash.

Answer 10

Liquidity lines are short-and medium-term lines of credit from external sources that LPs can use to meet capital calls when they run out of cash.

Question 11

What are the 5 sources of liquidity for PE investors:

1. ___ lines
2. Maturing ___investments
3. ___other investments
4. ___limited partnership shares
5. ___from PE funds

Answer 11

What are the 5 sources of liquidity for PE investors:

1. Liquidity lines
2. Maturing treasury investments
3. Realizing other investments
4. Selling limited partnership shares
5. Distributions from PE funds

Question 12

Undrawn capital should ideally be managed by ___

Answer 12

Undrawn capital should ideally be managed by LPs

Question 13

___ ___ ___is the long-term management of commitments with the goal of constructing and maintaining a balanced, stable portfolio that is in line with the investment strategy.

Answer 13

Strategic commitment steering is the long-term management of commitments with the goal of constructing and maintaining a balanced, stable portfolio that is in line with the investment strategy.

Question 14

Cash flow projection models take into account 4 key factors:

1. ___ and ___data
2. Expert ___
3. ___and ___data
4. ___

Answer 14

Cash flow projection models take into account 4 key factors:

1. Market and empirical data
2. Expert judgement
3. Drawdown and distribution data
4. Models

Question 15

There are 3 cash flow projection models:

1. ___
2. ___
3. ___

Answer 15

There are 3 cash flow projection models:

1. Estimation
2. Forecasting
3. Scenarios

Question 16

___ cash flow projections are based on short term, current market conditions and is used for data gathering and analysis.

Answer 16

Estimation cash flow projections are based on short term, current market conditions and is used for data gathering and analysis.

Question 17

___ cash flow projections are for medium term time periods, specific market environments and involve quantitative modeling.

Answer 17

Forecasting cash flow projections are for medium term time periods, specific market environments and involve quantitative modeling.

Question 18

___ cash flow modeling involves the long-term, an uncertain market environment and is used for planning purposes.

Answer 18

Strategic cash flow modeling involves the long-term, an uncertain market environment and is used for planning purposes.

Question 19

Over-commitment ratios tend to be ___%-___%

Answer 19

Over-commitment ratios tend to be 125%-140%

Question 20

To achieve a higher over-commitment level, LPs should diversify across ___ ___.

Answer 20

To achieve a higher over-commitment level, LPs should diversify across vintage years.