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Private Markets Cert study materials
Private Markets Cert study resources

Private Markets Cert: Private Markets (general)

Private Markets Cert · Work through your exam, one topic at a time.

All guide sections

Private Markets (general)

What the domain tests

Private Markets (general) examines the structural, economic and operational mechanics that separate private from public investing: closed-end fund structures, the LP/GP relationship, capital deployment, valuation, performance measurement and liquidity routes. Questions are typically calculation-based (fees, carry, IRR/MOIC) or ask you to identify the correct party, document or incentive.

Core mechanics

  • Closed-end fund: LPs commit capital; the GP calls it over an investment period (often 3–5 years), holds portfolio companies for roughly 5–10 years, then exits.
  • Economics: a management fee (commonly 1.5–2% of commitments or NAV) plus carried interest (often 20% of profits above an 8% hurdle).
  • Waterfall: European (whole-fund) returns all capital and the preferred return before carry; American (deal-by-deal) can pay carry earlier, subject to clawback.
  • Performance: IRR is time-weighted on cash flows and sensitive to early distributions; MOIC is an absolute multiple. DPI = distributions ÷ paid-in capital; TVPI = (distributions + residual value) ÷ paid-in; RVPI = residual value ÷ paid-in.
  • Valuation: fair value under ASC 820 or IFRS 13, using market, income or cost approaches; private marks can be stale and smoothed.
  • Liquidity: secondaries, continuation funds, co-investment and NAV facilities.

Worked example

An LP commits $100m. The GP calls $80m and later distributes $120m with zero NAV. DPI = 120 ÷ 80 = 1.50x; TVPI is also 1.50x. If instead the fund distributes $60m and holds $90m NAV after $80m paid-in, DPI = 0.75x, TVPI = 150 ÷ 80 = 1.875x and RVPI = 90 ÷ 80 = 1.125x. Now apply a European waterfall with an 8% preferred return and 20% carry: profit is $40m, the preference is $6.4m (8% × $80m paid-in, simplified to one period), so the LP first receives $86.4m. Of the remaining $33.6m, carry is $6.72m and the LP keeps $26.88m. Total LP proceeds are $113.28m; the GP receives $6.72m. The example shows why the hurdle, compounding convention and fee basis materially change outcomes.

Traps that cost marks

  • Confusing IRR with MOIC: a fast early exit can lift IRR without a high multiple.
  • Treating American and European waterfalls as equivalent.
  • Using committed capital instead of paid-in capital in DPI/TVPI denominators.
  • Assuming subscription lines are free: they defer calls and can flatter IRR.
  • Ignoring clawback, GP commitment and fee offsets when assessing alignment.