Secondaries Advisory Model Test

Based on the most helpful WSO content, here’s what you need to know about preparing for a secondaries advisory modeling test:

1. Common Prompts:

   • Standard LBO: This is a foundational exercise, so ensure you're comfortable with building a basic leveraged buyout model, including debt schedules, returns analysis, and sensitivity tables.
   • Single Asset CV LBO with Tiered Waterfall: This could involve modeling a single asset with a carried interest structure. Understanding how to build a waterfall model is crucial here.
   • Multi-Asset/Fund Valuation: This might require evaluating multiple assets or funds, incorporating assumptions like cash flows, discount rates, and potential exit scenarios.

2. Waterfall Modeling Insights:

   • Basics: A waterfall model allocates returns among stakeholders based on predefined hurdles and promotes. You’ll need to calculate returns at each tier and ensure they tie out exactly to the hurdle rates.
   • Key Concepts:
     • Return of Capital vs. Return on Capital: Understand the distinction and how proceeds are distributed.
     • Hurdles and Promote Structures: Be clear on how to calculate IRR hurdles and allocate promote shares.
     • Testing Accuracy: Ensure your test return percentages tie out exactly to the hurdle. A good practice is to use Excel formulas to validate that your test value equals the input value.

3. Preparation Tips:

   • Practice Complex Scenarios: For example, add layers like refinancing, diversified asset assumptions, or additional promote tiers to your practice models.
   • Focus on Clarity: Lay out your waterfall structure clearly, so it’s easy to follow. Use color coding for inputs and outputs.
   • Time Management: These tests are often time-constrained, so practice building models efficiently.

4. Resources:

   • WSO offers 27 financial modeling templates and free financial modeling lessons that include LBO, DCF, and waterfall modeling. These can be invaluable for practice.

If you’re new to waterfall modeling, start with simple examples and gradually add complexity. The goal is to demonstrate a solid understanding of the mechanics and the ability to adapt to different scenarios. Good luck!

Sources: https://www.wallstreetoasis.com/forum/real-estate/megafund-repe-modeling-test?customgpt=1, Failed Real Estate Acq Assoc Candidate Case Study, https://www.wallstreetoasis.com/forum/real-estate/waterfall-technical-question?customgpt=1, Real Estate Private Equity Case, Case Studies & Modeling Tests: How Exactly Are They Administered?