Basics

Question 1

Private Equity vs VC

Answer 1

Co in Mature life cycle stage or firms in decline stage vs early life cycle or startup phase. VC is a form of PE

Question 2

High water mark

Answer 2

Fund’s peak value net off fee

Question 3

Claw back provision

Answer 3

Activated when GP exits successful deals early but incurs loss later. For most alternative investments, investor high-water marks carry over into new calendar years, but in the case of hedge funds, an investor may no longer claw back incentive fees paid for a prior calendar year if portfolio losses are incurred later. Given the generally more illiquid and longer-term nature of their holdings, private equity and real estate investments are more likely to contain claw back clauses for the entire life of the portfolio.

Question 4

deal-by-deal (or American) waterfalls and
whole-of-fund (or European) waterfalls.

Answer 4

More advantageous to GP vs GP doesn’t participate in any profits until LPs receive their initial investment and hurdle rate has been met

Question 5

Investment Life Cycle

Answer 5

Capital Commitment, Capital Deployment, Capital Distribution. J curve effect because initial negative return

Question 6

Four areas to focus on during performance appraisal

Answer 6

Life cycle of investment, amount of borrowed funds used to maintain mkt position, asset valuation & fund fee structure

Question 7

Multiple of Invested Capital

Answer 7

Money multiple on total invested capital = (Realized + Unrealized Investment Value) / Total amount of invested capital (net off mgt fee). Doesn’t consider timing of CF

Question 8

HF vs MF

Answer 8

Fee not same for everyone coz one who invest more fund at earlier phase or willing to accept greater restriction on redemption get less fee to pay vs Fee uniform for all