INV-08 · Fund math with nothing hidden

Model FUND-ACME-I from its terms: fees, carried interest, capital calls, and the J-curve. Why does a careful investor trust DPI before TVPI before IRR?

FUND-ACME-I: README.md (terms), lp-cash-flows.csv, positions.csv. A spreadsheet. Lab L-06 first.

Charging carry before investors have their capital back. Leaving fees out of the cash flows. Treating NAV as cash. Reporting IRR without the J-curve that produced it. Confusing gross and net returns.

A fund model: calls, fees, investments, distributions, and NAV by year; the J-curve chart of cumulative net cash flow; DPI, RVPI, TVPI, and net IRR; the carry calculation under the fund's whole-fund terms, at today's marks and at two other exit scenarios the student defines; and a one-page letter to limited partners ranking the metrics by trustworthiness.

CT: separating cash from marks. CR: designing exit scenarios that test the carry terms. CO: a peer rebuilds one year's flows and checks the model. CM: the investor letter. CZ: the limited partners — often pension funds and endowments — whose beneficiaries bear fee drag.

A fund accountant or analyst reviews the model. Standing instruction: reject any model in which invested capital does not reconcile to the positions. School-supervised.

R1: one fund, one as-of date. R2: model reconciles to the case files. R3: comparator is the GP's reported numbers. R4: the mark dependence of TVPI and IRR named. R5: the letter is readable by a trustee. R6: says who bears fees and what the marks do not prove.

(a) A high IRR reported with no mention that most of it is unrealized. (b) Carry charged on paper gains before capital is returned.

Lane A (finance, economics, or AP Statistics project). No verified credit claim.