Performance and Risk Q&A

__Upcoming Events__

- Open Council Meeting - December 19, 2018
- Open Council Meeting - February 20, 2019

**Derivatives****Q: In computing time-weighted returns (levered), should the appreciation of derivative instrument used to hedge debt instruments be a part of the appreciation numerator?**A: Yes, provided that the derivative is valued as a part of the debt valuation process, and further provided that the change in value is reported in the financial statements. Derivatives might be valued separately from the debt instrument but the change in value of it is combined with other changes in value for purposes of calculating the appreciation (depreciation) return.

Q: We calculate the internal rates of return and investment multiples for our private equity real estate closed end fund. When calculating the investment multiple (TVPI), how do you treat redemption? Would you consider them distributions?

TVPI =

(Cumulative paid-in-capital since inception)

The investment multiple (TVPI) provides investors with an indication of how many times more the investment is worth compared with the original investment, without taking into account, the time value of money. It is equal to the sum of the total distributions since the inception and the investment's residual value divided by the total paid in capital (or contributions) (i) since inception.

The total distributions since inception include any capital that has been returned to investors. It is the total amount of capital that investors have "realized" for the fund (i.e. operations and return of capital). Please note, for fund level calculations on TVPI, all contributors and distributions since inception are included in the TVPI. Accordingly, if one investor bought into the fund and another redeemed its share of the fund, then the new investor's capital would be added to the inception capital contributions. The redemption would be added to distributions. Therefore, if the amount contributed and redeemed were identical, there would be no effect on the TVPI.

(i) "3-7 Private Equity." Global Investment Performance Standards Handbook. 3rd ed. Vol. 2012. [S.I.]: Pbd Worldwide Fulfillment, 2012.275.Print