Based on Scwheser Study Notes Level 2 Book 4 page 62-64: NAV before [given period’s] distributions = NAV after distributions in prior year + capital called down - management fees + operating results and NAV after distributions = NAV before distributions - carried interest - distributions and in the first year that NAV before distributions exceeds committed capital, carried interest is [20]% x (NAV before distributions - committed capital). In subsequent years, carried interest is calculated using the increase in NAV before distributions. A few questions about calculation of carried interest according to the first total return method: Are distribution amounts purely a function of proceeds from a sale? Or can they also include dividend payments from a portfolio company of a private equity fund? Is the distribution amount determined at the will of the General Partnership? I ask because it seems that if a distribution is not paid out, then the next year’s NAV before distributions will be that much higher, and so the carried interest for the next period will be higher. This doesn’t seem to make sense. Why should the LP’s carried interest obligation be higher simply because the money was “held” instead of being distributed? Thank you very much.
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I somehow totally understand , I think you are right.