Calixto reviews the endowment’s future liquidity requirements and analyzes one of its holdings in a private distressed debt fund. He notes the following about the fund:
- As of the most recent year end:
- The NAV of the endowment’s investment in the fund was €25,000,000.
- All capital had been called.
- At the end of the current year, Calixto expects a distribution of 18% to be paid.
- Calixto estimates an expected growth rate of 11% for the fund.
Q. Calculate the expected NAV of the fund at the end of the current year.
The expected NAV of the fund at the end of the current year is €25,258,050, calculated as follows:
First, the expected distribution at the end of the current year is calculated as
Expected distribution = [Prior-year NAV × (1 + Growth rate)] × (Distribution rate).
Expected distribution = [(€25,000,000 × 1.11) × 18%] = €4,995,000.
Therefore, the expected NAV of the fund at the end of the current year is
Expected NAV = [Prior-year NAV × (1 + Growth rate) + Capital contributions – Distributions)] × (1 + Growth rate).
Expected NAV = [(€25,000,000 × 1.11) + 0 − €4,995,000] × 1.11 = €25,258,050.
