The J-Curve Effect

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J-Curve
The J-Curve is influenced by the level of fees early on in the funds life. Management fees are based on the entire committed capital Management fees and organizational expenses have a significant effect on the shape of the J-Curve.

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J curve

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A fund usually consists of different types of transactions

Some very successful transactions, those that meet expectations that underperforms

The

latter can usually be identified fairly quickly and are hence written down. the companies exceeding expectations, it takes a longer time to implement the changes creating value and finally realize the positive outcome
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For

 J-Curve

effect is also more pronounced where private equity managers are more conservative value of their investments close to cost until they are forced to write up the value of their assets close to or at the time of the realization.

The

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 Timing More

of the investments and divestments.

quickly fund managers invest capital, the steeper the J-Curve. it takes to generate distributions, the longer (and usually deeper) the trough of the J-Curve.

Longer

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Valuation & Performance Measurement

In

the first year of a private equity fund, investments are carried at cost. subsequent years, the sale of portfolio companies or public offerings of their shares results in cash and/or stock distributions tothe Limited Partners

In

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Contd..
Increasing

proportions of a fund's performance reflects actual cash distributions received, rather than valuation estimates. most widely used measure of performance is theinternal rate of return (IRR).

The

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 The

calculation of the IRR takes into consideration the timing of cash contributions and distributions to and from the partnership and the length of time an investment has been held.

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Thank You

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