An investment in a traditional liquid fund generally involves only two cash flows; the initial investment and proceeds on sale of the investment. Private equity funds are different – this article explains the typical cash flows that occur during the life of a Private Equity fund. This is for illustrative purposes only, actual performance and cash flows will vary. Past performance is not indicative of future returns.
1. Initial Investment – With Truffle, your investment is fully funded upfront. This means that investors do not have to worry about having capital available at short notice to meet capital call payments from the underlying fund.
2. Investment Period – This period, which is typically 4 or 5 years for a Private Equity fund, is where the fund manager makes its investments; i.e. buys companies as per its target strategy.
3. Distribution Period – Following the end of the investment period, a fund will have the remainder of its life, usually 10 years in total (including the investment period), to sell (or “exit”) its investments. Following a sale of a company, the proceeds from that sale are returned to investors. Consequently, investors may expect to receive distributions from approximately year 5 onwards.
4. Break Even – The pace of distributions is not guaranteed, and will vary from fund to fund. Generally speaking, Private Equity funds will “break even” (i.e. have distributed 100% of the original invested amount) around year 7. Further distributions may then follow over the remainder of the fund’s life.
For illustrative purposes only. Actual performance and cash flows will vary and both the timing and size of cash flows are not guaranteed. Assumptions: 10-year fund life, net return of 2.0x, capital invested equally over a 4 year period, with distributions over a six year period.
Truffle Invest provides access to private markets funds for smaller investors. Visit www.truffleinvest.com to find out more, see if you are eligible to invest, and review current investment opportunities.