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  3. assume a fund has a 10 year life and $800 million

Assume a fund has a 10 year life and $800 million committed capital. Investments are...

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Finance

Assume a fund has a 10 year life and $800 million committed capital. Investments are made in 4 equal installments in each of the first 4 years, e.g. year 1-4, (committed capital equals the sum of total management fees and total investment costs). The management fee is 2.5% of committed capital throughout the fund's life, payable at the beginning of the year. Investments are held for 6 years and then they are sold / distributed. Assume that the investments earn the same annual gross rate of return of 35% over 6 years. The GP of the fund is entitled to a 30% carried interest, but not until the investors have received their committed capital ($800 million). What are the cash flows to LPs in year 7?

O $876 million

O $866 million

O $856 million

$616 million

Considering the last example, under which scenario does the cash flow to LPs in year 7 change (while keeping any other assumption in the example unchanged)?

If the fund has a 10% hurdle rate on committed capital and a 100% catch-up

If the fund has an 8% hurdle rate on committed capital and a 100% catch-up

If the fund has a 6% hurdle rate on committed capital and a 100% catch-up

If the fund has an 5% hurdle rate on committed capital and a 100% catch-up

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