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IBBC CAPITAL ACADEMY / 2027

Private equity and private debt over a fund life

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 private equity stages using mechanisms and limitations.
  • Explain private debt claims using mechanisms and limitations.
  • Explain portfolio role using mechanisms and limitations.

Draft · approximately 25 minutes, excluding further revision.

Private equity stages

Venture capital funds young firms with high uncertainty, growth equity supports expansion and buyouts acquire established businesses; exit paths and financing differ.

Buyout leverage can amplify equity gains and losses; operating improvement and entry/exit valuation changes should be separated from debt effects.

Private debt claims

Private debt may include direct lending, mezzanine, distressed and special situations with negotiated protection; illiquidity is not automatically a return premium earned.

Debt priority, covenants and cash versus payment-in-kind interest affect risk; capitalized interest increases claims without immediately supplying cash to lenders.

Portfolio role

Capital calls and delayed exits create a J-curve pattern in some funds, but it is not universal or proof that weak performance must improve.

Diversification benefits require exposures distinct from existing assets and realistic unsmoothed correlations; private marks can conceal public-market sensitivity.

Formula and assumptions

Equity multiple=exit equity plus distributions/paid-in equity, with consistent flow definitions

Original applied case: Private equity and private debt over a fund life

  1. An acquisition uses enterprise value 100, debt 60 and equity 40; exit value 120 and debt 50, ignoring cash and fees.
  2. Exit equity=70; equity multiple=70/40=1.75 times.
  3. The multiple combines enterprise growth and debt repayment; annualized return also needs holding duration and intermediate flows.

Errors to catch

  • Do not assume: Every venture investment is an established leveraged buyout.
  • Do not assume: Leverage amplifies gains but never losses.
  • Do not assume: Every illiquid private loan earns a guaranteed premium.

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.