PE Secondaries- Excel Case Study

Comps are the main form of valuation for each company. If the Fund owns 10% of a company then take 10% of the equity value at exit. Say for example $10M EBITDA today grows to $20M EBITDA by exit, apply a TEV/EBITDA multiple based on the comp set you built, remove the net debt (which will have been paid down with your EBITDA to FCF calculation), then take 10% of the remaining equity. This is the distribution that gets paid to the fund. You do this for each company. DCF is almost never used. 2) The management fees and carry are removed on a fund level for modeling purposes, so all company cash flows get aggregated first. Take out 1.5% per year for management fees, then 20% of any profit. If $100 was paid-in, and the return from all companies is $150 over the next 2 years, then after fees you have $147. Remove 20% of the $47, and you're left with $137.6 to the fund. 3) It depends really. Use a floor of 15% and 1.5x. Your investor will not want lower on either. So if you have a fund that returns everything next year, generating a ridiculously high IRR but a 1.2x, its not a good deal. Or a longer duration deal generates a 1.7x over 10 years, but only a 10%; would be a tough deal. Secondaries are unique in that you're buying pretty mature assets, so the IRRs tend to be pretty high; but without a solid multiple to go with it, its a tough investment. IRR almost always clears the hurdle, so focus tends to be on the multiple. If the fund generates $150 to me, then I pay $100 for it, getting me the 1.5x. Keep in mind that there is an extra layer of fees in the Secondary as well, usually 1% and 10%. The 1.5x and 15% floor is after those fees, so returns coming into the Secondary are usually 1.6x and ~18%.