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At a high level there are 2 components that drive your returns
So the cash flows are the discount to NAV at entry and the rest of the CFs are the same as any other fund investment (capital calls for fees, investments or fund expenses; distributions for dividends or exits).
Thank you very much for the response Franco, one additional question is how to value the unfunded? Is it fine to use a threshold IRR and net multiple (assuming 15% or 1.5x) and value the unfunded based on the one which gives lower value? However we won't have any cashflows for the unfunded so does it make sense to take the net multiple based on remaining life?
That’s a good question. You have to assume a return on the “new money”. This may be quite different to the existing portfolio depending on the reason for the secondary.
This assumption then flows into the target IRR, which can be adjusted based on the discount to NAV bid price.
Got it understood. Much appreciated Franco. By any chance would you have a draft case study / model which I can refer to so that I have better understanding of how the calculations flow? Would be super helpful.
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