Secondary Fund Economics Model

The model's core economic driver is the purchase price, calculated as reported NAV multiplied by one minus the entry discount. This discount determines the initial cost basis and, alongside realisation pace and NAV appreciation, shapes the return profile.

• Cash inflows come from distributions, modelled as a percentage of remaining NAV realised per period, with a minimum guard to prevent exceeding available value. Outflows include unfunded commitment calls, which reduce net returns if present.
• Transaction costs, ongoing management fees, and carried interest further affect net outcomes. The model explicitly separates gross and net figures, so users can see the impact of fee layers on returns.

These relationships capture the essential trade-offs in secondary investing.

The calculation flow begins with the portfolio NAV roll-forward, which projects opening NAV, appreciation, realisations, write-downs, and closing NAV. This drives distribution timing and magnitude.

• The cash flow schedule combines the initial purchase price outflow, unfunded calls, distributions received, transaction costs, ongoing expenses, and any leverage draws or repayments. Net cash flow per period is then derived.
• To avoid circularity when leverage is used, repayments are based on prior-period distributions. The model also computes total invested capital as purchase price plus cumulative unfunded calls plus transaction costs.

This structured flow ensures that each component is explicitly linked, making the model auditable and consistent.

The model produces a suite of return metrics: gross and net IRR, MOIC, DPI, RVPI, and TVPI. Gross MOIC uses cumulative distributions plus residual NAV to buyer, divided by total invested.

• DPI measures realised returns, while RVPI captures unrealised value. TVPI is simply the sum of DPI and RVPI.
• IRR is calculated from a cash flow stream that includes a negative Year 0 purchase price and subsequent net cash flows. Sensitivity tables allow users to examine how entry discount and realisation pace affect returns.

These outputs give a comprehensive view of both realised and unrealised performance, with clear separation between gross and net figures.

The template includes validation checks to ensure model integrity: closing NAV and unfunded commitments stay non-negative, distributions do not exceed opening NAV, leverage respects the LTV cap, and TVPI equals DPI plus RVPI. These checks help catch common errors such as omitting unfunded calls or double-counting the purchase price.

• Sensitivity analysis on entry discount and realisation pace helps users understand how target returns vary under different assumptions. The model supports equity-funded deals and includes an optional leverage toggle, though leverage introduces circularity that is handled via prior-period distributions.
• By keeping the public download as a values-only preview, the template communicates the underlying structure without exposing live formulas. Users can assess whether a secondary portfolio meets return targets and at what discount.