Private Equity Fund Valuation Guide

1. Overview of the Valuation Pipeline

This guide documents the complete valuation pipeline for private equity fund management — covering the journey from individual portfolio company fair value assessment through to fund-level Net Asset Value (NAV) computation. The methodology is consistent with ASC 820, IFRS 13, and the IPEV Valuation Guidelines (2025 edition).

All illustrative figures use a $500M committed fund with four portfolio companies, $450M paid-in capital, and $45M cumulative distributions.

2. Portfolio Company Valuation Methodologies

Each portfolio company is valued independently using one or more of three standard approaches. The following diagram illustrates all three applied to a single portfolio company:

Figure 1: Three valuation approaches with illustrative figures. Market uses sector-specific EV/EBITDA and EV/Revenue multiples. Income uses a 5-year DCF with WACC. Cost uses depreciated replacement cost.

Implied EV (EBITDA) = Subject EBITDA × EV/EBITDA Multiple
Implied EV (Revenue) = Subject Revenue × EV/Revenue Multiple
Blended EV = EBITDA-implied × 70% + Revenue-implied × 30%
Equity Pre-Discount = Blended EV − Net Debt
Fair Value = Equity × (1 − Illiquidity Discount)
Attributable Value = Fair Value × Fund Ownership %

EV = Σ [FCF(t) / (1 + WACC)^t] + [Terminal FCF / (WACC − g)] / (1 + WACC)^n
Equity Value = Enterprise Value − Net Debt
Price Per Share = Equity Value / Fully Diluted Shares

Fair Value = RCN × (1 − Physical Depr.) × (1 − Functional Obs.) × (1 − Economic Obs.)
Net Replacement = Σ Asset FVs − Liabilities + Entrepreneurial Incentive (20%)

3. Gross Asset Value Assembly

Figure 2: NAV waterfall from portfolio fair values through GAV to final NAV with performance metrics.

GAV = Investment NAV + Cash & Equivalents + Accrued Receivables + Other Assets

4. Fund-Level Liabilities & Deductions

Management Fee = Basis Amount × Rate × Period Fraction × Pro-Rata Days × (1 − Offset %)
Carry = max(0, Waterfall GP Share − Previously Distributed Carry)

5. Net Asset Value Computation

NAV = max(0, GAV − Total Liabilities) = max(0, $620.0M − $26.7M) = $593.3M

6. Distribution Waterfall & Carried Interest

Figure 3: European waterfall with $638.3M hypothetical proceeds, 8% preferred return, 20% carried interest.

The platform supports both European (whole-fund) and American (deal-by-deal) waterfalls. In the European waterfall, the GP receives no carry until ALL LP capital has been returned and the preferred return achieved. A clawback mechanism with configurable escrow (30-50%) protects LPs if early carry distributions exceed final entitled carry.

7. Performance Metrics

IRR = XIRR({
  Capital Calls → negative cash flows (LP outflows, dated)
  Distributions → positive cash flows (LP inflows, dated)
  Terminal NAV  → positive cash flow at reporting date
})
Solver: Newton-Raphson (100 iter) → Bisection fallback → Simple return fallback

8. Per-LP Capital Account Allocation

NAV is allocated pro-rata by commitment share. Unrealized G/L is the LP's pro-rata share of fund-level unrealized gain. GP commitments are excluded from fee and carry calculations.