Calculating Fund IRR after recent portfolio IPO

Hi All,

Unfamiliar situation for me here.

We recently IPO'd a company that has done extremely well post going public (Up 300%-400% from pricing). We now need to calculate the fund IRR as of 9/30/13. The one portfolio company has done so well, it's moving the IRR number over 10%+ from last quarter to this quarter.

The caveat is the stock is only averaging about 175K shares volume a day. Given this, I'm wondering if we need to factor in a liquidity discount for the shares we own (1m - 2m). Reasoning for this is if we sell all these shares once the lockup date ends then that large sell would drive the price down. Knowing this would justify the need for a discount potentially.

However, the counter caveat is that the LPA says on the share lock up end-date the fund must distribute the shares. Thus, it is not our responsibility sell the asset, rather just distribute shares back to all LP's and give them the right to buy and sell as they see fit, and our realized value is the share distribution date.

Anyone run unto this before?

 
Best Response

Interesting. I think its somewhat common for funds to add a liquidity discount when shares are in lock-up (usually 10% or so), independent of the ultimate distribution method. Btw, although your Fund may think you're doing a service to LPs by distributing shares immediately post-lock-up, its a bit disingenuous. You get to book the distribution in your track record (and carry calc) at the share value, whereas the majority of LPs will turn around and sell immediately, likely taking the liquidity hit in the open market. So the returns you show don't ultimately match what the underlying LPs receive.

You can sort of get around this by booking the share distribution at a trailing 5 or 10 day average to account for the selling.

 

Fuga nemo rerum iure aut. Rerum ab ipsum sit facilis enim. Et quia et illo. Consequatur ut molestiae animi quos.

Cum dolores sequi tempore laboriosam itaque sed temporibus. Ab nesciunt voluptatem corrupti perferendis veniam rerum. Et provident optio beatae harum. Et fugiat veniam facere eos.

Illo earum nemo nemo laborum sunt. Omnis quam omnis perspiciatis qui delectus. Quas quae et non aperiam. Blanditiis in aliquam placeat et ab. Expedita et aut quam dolorem nihil.

"If you want to succeed in this life, you need to understand that duty comes before rights and that responsibility precedes opportunity."

Career Advancement Opportunities

March 2024 Private Equity

  • The Riverside Company 99.5%
  • Warburg Pincus 99.0%
  • Blackstone Group 98.4%
  • KKR (Kohlberg Kravis Roberts) 97.9%
  • Bain Capital 97.4%

Overall Employee Satisfaction

March 2024 Private Equity

  • The Riverside Company 99.5%
  • Blackstone Group 98.9%
  • KKR (Kohlberg Kravis Roberts) 98.4%
  • Ardian 97.9%
  • Bain Capital 97.4%

Professional Growth Opportunities

March 2024 Private Equity

  • The Riverside Company 99.5%
  • Bain Capital 99.0%
  • Blackstone Group 98.4%
  • Warburg Pincus 97.9%
  • Starwood Capital Group 97.4%

Total Avg Compensation

March 2024 Private Equity

  • Principal (9) $653
  • Director/MD (21) $586
  • Vice President (92) $362
  • 3rd+ Year Associate (89) $280
  • 2nd Year Associate (204) $268
  • 1st Year Associate (386) $229
  • 3rd+ Year Analyst (28) $157
  • 2nd Year Analyst (83) $134
  • 1st Year Analyst (246) $122
  • Intern/Summer Associate (32) $82
  • Intern/Summer Analyst (313) $59
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
dosk17's picture
dosk17
98.9
6
DrApeman's picture
DrApeman
98.9
7
kanon's picture
kanon
98.9
8
CompBanker's picture
CompBanker
98.9
9
GameTheory's picture
GameTheory
98.9
10
Jamoldo's picture
Jamoldo
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”