Question

Suppose that a $1000M VC fund has fees of 2.0 percent per year in all years, with these fees paid on committed capital in the first five years and on net invested capital for years 6 through 10. You can assume the fund is fully invested by the beginning of year 6, and then realizes 20 percent of its investment capital in each of the following five years. What are the lifetime fees and investment capital for this fund? (net invested capital = invested capital - cost basis of realized investments)

(Correct answer: Lifetime Fees = $150.94 Investment Capital = $849.06)

How to calculate the correct answer?

Answer #1

Year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
---|---|---|---|---|---|---|---|---|---|---|

Annual investment |
$169.81 | $169.81 | $169.81 | $169.81 | $169.81 | |||||

Cumulative Annual Investment |
$169.81 | $339.62 | $509.43 | $679.25 | $849.06 | |||||

Beg Bal of NIC | - | $169.81 | $339.62 | $509.43 | $679.25 | $849.06 | $679.25 | $509.43 | $339.62 | $169.81 |

Management fees | $20 | $20 | $20 | $20 | $20 | $16.98 | $13.58 | $10.19 | $6.79 | $3.40 |

Change in NIC | $169.81 | $169.81 | $169.81 | $169.81 | $169.81 | ($169.81) | ($169.81) | ($169.81) | ($169.81) | ($169.81) |

End Bal of NIC | $169.81 | $339.62 | $509.43 | $679.25 | $849.06 | $679.25 | $509.43 | $339.62 | $169.81 | - |

accumulated management fees | $20 | $40 | $60 | $80 | $100 | $116.98 | $130.57 | $140.75 | $147.55 | $150.94 |

Contributed capital | $189.81 | $379.62 | $569.43 | $759.25 | $949.06 | $966.04 | $979.62 | $989.81 | $996.6 | $1000 |

Lifetime fees = $150.94

Investment capital = $849.06

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