Can anyone guide me that how to calculate IRR for Private Equity Fund. I have the following data.

  • Capital Call with dates
  • Management Fees with dates

I used excel formula of XIRR, but I found that excel need one positive number that could be Distribution or unrealized fair value.

During my search, I found a document stating that all your capital call and management fee should be negative and Distribution or unrealized fair value should be position. Unfortunately, I don't have Distribution or unrealized fair value at this stage.

kindly suggest how can I calculate return.

  • $\begingroup$ If you don't have payoffs, you can't calculate a realized return. Do I not understand something? $\endgroup$ – Matthew Gunn Oct 4 '18 at 13:52
  • $\begingroup$ I believe you are right because based on my searching, I found that I should have some payoff. One thing i would like to mention that its a closed end fund, so in this case there will be no distribution. Kindly suggest if there is any way to calculate return with the available information. $\endgroup$ – Arfeen Zia Oct 4 '18 at 14:06
  • $\begingroup$ A similar question might be, "how do I calculate the return of Apple from today (10/4/2018) to next year (10/4/2019)?" I similarly don't have the distributions of Apple in the next year or the price at the end of next year. $\endgroup$ – Matthew Gunn Oct 4 '18 at 14:18
  • $\begingroup$ But if its stock return, we can forecast the price through Monte Carlo simulation. However, for my question, I do agree with you that it's not possible to calculate return with the available information. Anyways, Thanks for your support. Appreciated.... $\endgroup$ – Arfeen Zia Oct 4 '18 at 14:22
  • $\begingroup$ Perhaps a question might be, "Let $\{x_t\}$ denote a time series of cash flows. An internal rate of return $r$ sets the present value of the cash flows to zero: $0 = \sum_t \frac{1}{(1+r)^t} x_t$. What do people do when the cashflows are stochastic? Is there analogue to internal rate of return where $\{X_t\}$ is a stochastic process?" $\endgroup$ – Matthew Gunn Oct 4 '18 at 14:39

Your approach is right: Take all the cash flows (outgoing with negative signs and incoming with positive sign), for unrealised take the NAV. If you don’t have NAV, then you will need to find a way to estimate the net value of the underlying portfolio, and the estimation approach would depend on the nature of the assets in the portfolio. If you know nothing about the underlying portfolio, then maybe time to switch to another PE firm!


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