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WSO Free Modeling Series - Now Open Through
April 30, 2024
9 Free Financial Modeling Lessons
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
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+Bonus: Get 27 financial modeling templates in swipe file
Hey there! It sounds like you've got an exciting challenge ahead with the elite boutique. Based on the most helpful WSO content, these case studies or modelling tests usually involve a mix of financial analysis, valuation, and strategic thinking.
For the modelling test, you might be asked to build a financial model based on a hypothetical investment scenario. This could involve financial statement modeling, DCF, M&A, LBO, Comps, and Excel Modeling. You might also be given a set of financial data and asked to make investment recommendations based on your analysis.
As for the case study, it could be a real-world business scenario where you'll need to apply your knowledge of private capital advisory. This could involve assessing a company's financial health, evaluating potential investments, or developing a strategic plan for growth.
Remember, they're not just looking at your technical skills, but also your thought process, problem-solving abilities, and communication skills. So, be prepared to explain your analysis and recommendations clearly and concisely.
And don't forget, practice makes perfect! Consider brushing up your skills with some of the WSO Courses or the WSO Academy. They offer a range of courses including the Networking Guide, Investment Banking Prep, Private Equity interviews, Behavioral Techniques, and more.
Good luck! You're going to ace it!
Sources: The Case for Elite Boutiques over any Bulge Brackets in 2022, Elite Boutiques in Canada (Toronto), Elite Boutique Technicals
Might be fund-level cash flow modeling if it’s LP-focused. Basic idea would be to project out the expected cash flows for each asset and run it through a waterfall at a few MOIC/irr hurdles to back into what % of NAV you would pay for the fund. If it’s GP-focused, could be a very basic CF vehicle which would be similar to a standard operating model (rev/cost structure, build to EBITDA, debt waterfall.
Any courses that teach this?
Not that I am aware of.
That's helpful thanks. So just to summarise the steps to take in a LP-Secondaries case study scenario - please correct me if I'm wrong:
1. LBO Model of the underlying portfolio companies and find the Exit Values for each one of them
2. Carry Waterfall: Adjust the Exit Values for Mgmt Fees and Carry to get the Net Proceeds to the LP at the various exit years of the portfolio cos. Where management fees will be calculated as a % of AuM while Carry as % of Fund's Profit (in this case I would assume fund's profit = exit equity value - entry equity value for each portfolio company)
3. Use the these values as the Fund's Cash Flow and discount to today at the target IRR
4. Calculate the Implied discount based on the Fund's NAV (which should be given as an assumption, or could be calculated if a BS of the fund is provided)
I guess in a case study scenario there won't be lot of time to do several LBOs for lots of portfolios companies, so they might give you to do just one and then adjust/add the net exit value to the respective year Fund's Cash flows which will be given as assumption
Yes, this would be the basic idea, though you wouldn't really be expected to do an LBO on each asset. For the purposes of a case study, I would assume that it would be fine to slap a multiple on them, calculate exit proceeds and call it a day. With that being said, I would be very surprised if they had you do what you listed above as that seems a bit intense for someone without prior secondaries experience. If they do, I would imagine that they would give you a pretty robust template to use so they just test to ensure that you have the basic concepts down. You're in a great spot though so dont worry too much.
Small nuance I’d point out in the carry calculation, make sure you are calculating it on the profit to LPs. Depending on how the data is cut, you would need to remove the GP’s initial fund commitment - usually 2%. The GP doesn’t earn carry on their own commitment.
Makes sense thank you both for following up on this. Indeed it's still a bit unclear to me the carry waterfall step following the LBO analysis at the portfolio level, once I get the exit values of the underlying portfolio companies. Is the calculation of the carry waterfall done one single time at a particular exit year starting from the sum of all the exit proceeds i.e. the sum of the fund's profits (calculated as the sum of all the exit equity values minus the sum of all the entry equity values per each portfolio company) or is it done at every single exit year based on the exited companies? I guess it must be the latter type of calculation cause I would need to have the various net cash flows as a stream over the fund's forecast period and then calculate the IRR or implied Price given a target IRR to get the implied NAV discount right?
It could be either. Again there’s nuance to all of this but what you’ve effectively described is American versus European waterfalls. The prior is European (waterfalls run at the fund level) and the latter is American (waterfalls run asset by asset at the time of exit).
For a case study, I would imagine they would give you a European waterfall so you don’t have to calculate clawbacks. Basically, the concept would be you have your gross cash flows in one schedule showing the gross cash flows to the fund at each respective exit year. That schedule is then pulled into one waterfall where you calculate the net proceeds to the LP at each specific time period and then the sum of it is the overall net proceeds. Timing of the distributions is important because that will effect your IRR and thus pricing.
I found this page to be super helpful when I was learning how distribution waterfalls worked:
https://www.asimplemodel.com/insights/distribution-waterfall
How early in the process did they ask you to complete this? Post Rd2?
It was the 4th round, just before the AC
I’m in a similar boat - any leads on the same? Thank you so much- hope it went well!
is this for SA or FT?
OC
what's OC?
I have a similar case study coming up too, do you think you could share what the task was exactly? Modelling out returns for a single asset continuation fund?
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