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3. How much does Grove Street charge for their services? What increment to performance is required to justify their fees? Using the information below construct a cash‐flow schedule with and without Grove Streets fees and carry. In analyzing the question, you may wish to assume that:
‐ Like CEV III, the next fund raised $500m. The money is draw down at the beginning of the first 6 years in the following pattern: $50m, $100m, $100m,$100m, $100m, $50m.
‐ The fund life is 12 years.
‐ The fees are paid out of drawn down capital for the first six years, for the next 6 years they are paid out of distributed capital.
‐ Proceeds are returned to GSA six years after the date of the original investment ‐ Initially assume that the proceeds are returns at a multiple of 2 on the original investment and that 15% is an appropriate discount rate.
‐ The annual management fee is 0.75% on committed capital. This fee is then halved in years 4, 5 and 6, and then halved again until year 12.
‐ Carried interest is 5% but can only be collected when committed capital has been returned. (You can ignore the effect of the hurdle rate)
‐ The basis for calculating profit is committed capital before fees (i.e. no double dipping)
how do i tackle this?
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