*Solve it by Excel*
*just question 2 is required
4. Concept in Action: Evaluating a Private Equity Fund This section illustrates the use of many of the concepts above to evaluate the performance of a private equity fund Michael Hornsby, CFA, is a Senior Investment Officer at Icarus, a UK-based institutional investor in private equity. He is contemplating an investment in Europa Venture Partners III, a new late stage technology venture capital fund, after a thorough due diligence performed on the fund and an updated due diligence on the GP. Icarus has been an investor in Europa Venture Partners' (EVP) previous two funds, EVPI and EVP II Icarus has been satisfied with the performance of EVP so far and is seeking to further expand its relationship with this GP because Icarus considers it a niche venture capital firm operating in a less crowded segment of the pan. European technology markets. As a result of its success, EVP decided to increase its carried interest for the third fund to 25 percent from 20 percent for the previous two funds. Homsby has received the information about the fund's financial performance and is seeking assistance in calculating and interpreting financial performance for a number of specific queries as outlined below Europa Venture Partners (EVP) General Partner Europa Venture Partners (EVP) was established to provide equity financing to later stage technology companies in need of development capital Erope. The GP seeks to provide strategie support to s end entrepren a d bring proven technologies to the market. The GP targets investment in portfolio companies between million and 10 million Established in 1999 Types Development Capital Actual Size Capital Called Mgm Fees Carried Terrest Term Date Fund Vitage M EVO 2001 as) 125 31000 31 Dec Financial performance for investments by leans in EVP funds Cod Capital (EM ) Capital Called Dos GrNet RR RRDPRVI TVI ) ) ) ) ) 16.1 11313619 255 Quartie 1 Hornsby also is interested in verifying management fees, carried interest, and the NAV of EVP I. He has the following information about yearly capital calls, operating results, and distributions. Calls, Operating Results, and Distributions (Million) Called-down Realized results Unrealized results Distributions 2001 2002 50 15 0 0 -5 -15 2003 10 10 15 2004 25 35 10 25 2005 10 40 15 45 2006 5 80 25 75 Operating results correspond to the sum of realized results from exits of portfolio companies and of unrealized results from the revaluation of investments held in portfolio companies. In addition to the information available on EVP I, Hornsby also knows from the fund prospectus that the distribution waterfall is calculated according to the total return method following the first alternative, i.e., the GP receives carried interest only after the fund has returned the entire committed capital to LPs. Management fees are calculated on the basis of the paid-in capital. Hornsby also wants to calculate DPI, RVPI, and TVPI of EVP I for 2006 and is interested in understanding how to calculate gross and net IRRs. 1. Interpret and compare the financial performance of EVP Land EVP H. 2. Based on the information given, calculate the management fees, carried interest, and the NAV of EVP I. Also calculate DPI, RVPI, and TVPI of EVP I for 2006. Explain on the basis of EVP I how gross and net IRRs are calculated, and calculate the gross and net IRRs. 4. Concept in Action: Evaluating a Private Equity Fund This section illustrates the use of many of the concepts above to evaluate the performance of a private equity fund Michael Hornsby, CFA, is a Senior Investment Officer at Icarus, a UK-based institutional investor in private equity. He is contemplating an investment in Europa Venture Partners III, a new late stage technology venture capital fund, after a thorough due diligence performed on the fund and an updated due diligence on the GP. Icarus has been an investor in Europa Venture Partners' (EVP) previous two funds, EVPI and EVP II Icarus has been satisfied with the performance of EVP so far and is seeking to further expand its relationship with this GP because Icarus considers it a niche venture capital firm operating in a less crowded segment of the pan. European technology markets. As a result of its success, EVP decided to increase its carried interest for the third fund to 25 percent from 20 percent for the previous two funds. Homsby has received the information about the fund's financial performance and is seeking assistance in calculating and interpreting financial performance for a number of specific queries as outlined below Europa Venture Partners (EVP) General Partner Europa Venture Partners (EVP) was established to provide equity financing to later stage technology companies in need of development capital Erope. The GP seeks to provide strategie support to s end entrepren a d bring proven technologies to the market. The GP targets investment in portfolio companies between million and 10 million Established in 1999 Types Development Capital Actual Size Capital Called Mgm Fees Carried Terrest Term Date Fund Vitage M EVO 2001 as) 125 31000 31 Dec Financial performance for investments by leans in EVP funds Cod Capital (EM ) Capital Called Dos GrNet RR RRDPRVI TVI ) ) ) ) ) 16.1 11313619 255 Quartie 1 Hornsby also is interested in verifying management fees, carried interest, and the NAV of EVP I. He has the following information about yearly capital calls, operating results, and distributions. Calls, Operating Results, and Distributions (Million) Called-down Realized results Unrealized results Distributions 2001 2002 50 15 0 0 -5 -15 2003 10 10 15 2004 25 35 10 25 2005 10 40 15 45 2006 5 80 25 75 Operating results correspond to the sum of realized results from exits of portfolio companies and of unrealized results from the revaluation of investments held in portfolio companies. In addition to the information available on EVP I, Hornsby also knows from the fund prospectus that the distribution waterfall is calculated according to the total return method following the first alternative, i.e., the GP receives carried interest only after the fund has returned the entire committed capital to LPs. Management fees are calculated on the basis of the paid-in capital. Hornsby also wants to calculate DPI, RVPI, and TVPI of EVP I for 2006 and is interested in understanding how to calculate gross and net IRRs. 1. Interpret and compare the financial performance of EVP Land EVP H. 2. Based on the information given, calculate the management fees, carried interest, and the NAV of EVP I. Also calculate DPI, RVPI, and TVPI of EVP I for 2006. Explain on the basis of EVP I how gross and net IRRs are calculated, and calculate the gross and net IRRs
