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IBBC CAPITAL ACADEMY / 2027

Alternative returns after timing and fees

Independent IBBC Capital draft content for self-study. Not affiliated with or endorsed by CFA Institute. New lessons await subject-matter review. No CFA designation or official PSM credit is awarded.

Learning goals

  • Explain return measurement using mechanisms and limitations.
  • Explain fee sequencing using mechanisms and limitations.
  • Explain data limitations using mechanisms and limitations.

Draft · approximately 25 minutes, excluding further revision.

Return measurement

Money-weighted return reflects cash-flow size and timing while time-weighted return removes external-flow timing; select the measure for the decision being assessed.

Private-fund NAV is an estimate, not necessarily an executable liquidation value; stale marks can smooth observed volatility and correlation.

Fee sequencing

Gross performance before fees cannot be compared directly with net public-market returns; specify management fees, incentive fees and other expenses.

Hard and soft hurdles, high-water marks and loss carryforwards can change incentive fees; the agreement controls the sequence and fee base.

Data limitations

Survivorship and backfill biases can overstate reported fund histories; include failed and discontinued funds where the analysis requires the opportunity set.

IRR can be sensitive to subscription financing and early distributions; compare cash multiples, timing and matched public benchmarks before inferring manager skill.

Formula and assumptions

Net ending NAV=gross assets−management fee−incentive fee−other costs

Original applied case: Alternative returns after timing and fees

  1. Beginning NAV 100, gross ending assets 112; fee is 2% of beginning NAV plus 20% of gain remaining after management fee, no hurdle.
  2. Management fee=2, incentive=20%×(12−2)=2; ending net NAV=108.
  3. Net return is 8%, conditional on that explicit fee sequence.

Errors to catch

  • Do not assume: Money-weighted returns ignore all cash-flow timing.
  • Do not assume: Reported NAV always equals immediate sale value.
  • Do not assume: Gross and net returns are directly interchangeable.

Original knowledge check

Answer every question before checking. Review explanations after submitting; retry starts a new attempt.

Sources and coverage status

These original lessons are drafts. Public outlines are used to check scope; the official learning-outcome text and proprietary question banks are not reproduced here. Follow the source for exam-year requirements and updates.