NAV Distribution

On the Private Equity study session, it talks about NAV before and after distributions:

NAV before distribution = NAV after distribution + Capital called down - management fee + Operating results

NAV after distribution = NAV before distribution - Carried interst - distribution

Can someone please explain to me the logic in the two formulae above? BY distribution, does it mean distributions to the limtied partners? With the first formula, why do we ADD capital called down, etc? I am trying to understand it so I don’t have to memorize it.


Logic is following:

Nav before distribution = funds which would be available to further investments as well as payoff to all participants (GP and LP) .

Nav after distribution = ending balance of funds which remain in fund after all distrbutions.

Nav before distributions = Begininng balance

Nav after distributions = ending balance.

Ending balance = beginning balance - distributions.

Beginning balance = prior ending balance + new capital inflow - management fee (always paid on new capital not on realized results) + operating results (may be negative).

Carried interest and distributions are payoff to GP and LP. Consider both as kind of bonuses/dividends.

Thanks! So management fee is always paid on new capital called?? Whereas carried interest is paid on the realized profit? (depending on whether there is a hurdle rate or not, etc). And you basically lump carried interst to GP and distirubtions to LP into the ‘Distributions’ bucket?

Correct. Also remember the logic of from those items derived multiples.

DVPI (realized profit to LP (consider them as shareholders for easy remembering although the situation here is more complex related to ordinary company).

Cummulative distributions / paid-in- capital as dividends/invested funds

RVPI multilple (not yet realized profit, shareholders funds remain in fund)

NAV after distrib / paid-in-capital

TVPI - Total result (realized + not yet realized) = DVPI + RVPI

It may be exactly in such form as a question.

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Best is with and example:
Committed Capital: $100 mil

Call Down Y1 : $50 mil ($50 mil X 2% Man fee = -$1 mil)
Call Down Y2 : $20 mil ([$50 mil + $20 mil] X 2% Man fee = -$1.4 mil)

YEAR 2 Total Man fee ($1 mil) + ($1.4 mil): ($2.4mil)

Realized Results Y1: $12 mil Unrealized Results Y1: ($3 mil)
Realized Results Y2: $24 mil Unrealized Results Y2: ($1 mil)

YEAR 2 Realized Results $36 mil Unrealized Results : ($4 mil)

NAV Begin ( $50 mil + $20 mil + $36 mil - $4 mil - $2.4 mil = $99.6 mil

Realized Results Y3: $72 mil Unrealized Results Y3: ($7 mil)

Call Down Y3 : $ 5 mil ([$50 mil + $20 mil+ R5 mil] X 2% Man fee = -$1.5 mil)

Thus, NAV before distribution in Y3:

          NAV Begin + Call Down - Man fee + Results (Real & Unreal)

      **$99.6 mil** + **$ 5 mil** - **$1.5 mil** + **$65 mil** (**$72 mil**-**$7 mil**)  

NAV before distribution Y3 = $168.1mil

NAV after distribution = NAV before distribution - distribution - Carried interest (i.e. 20%)
$168.1mil - $5mil - $12.62mil
[$168.1mil - $5mil -$100mil]
X 20%
NAV after distribution = $150.48mil