Case study: reading an LP's quarterly report

All organizations, companies and figures in this case are fictional and illustrative. They are chosen to keep the arithmetic simple, not to describe any real fund or market.

The situation

The Lakeshore Teachers' Retirement Plan, a fictional pension plan, committed $20 million to Ashcombe Capital Fund I, a $100 million buyout fund managed by Ashcombe Capital. That makes the plan a 20% LP. Five years on, the plan's new private equity analyst has been handed the fund's quarterly report and the plan's capital account statement for the fourth quarter of year 5, and has been asked to brief the plan's trustees.

Under the fund's limited partnership agreement, the investment period ended at the end of year 5. The management fee was 2% a year of commitments during the investment period and is now 1.5% a year of invested capital. None of the fund's distributions are recallable. Read the two summaries below, then answer the questions.

Ashcombe Capital Fund I: quarterly report summary, end of year 5 (illustrative)

Fund-level figures	$m
Total commitments	100.0
Paid-in capital to date (including $10.0m of management fees)	85.0
Unfunded commitments	15.0
Distributions to date	35.0
Capital called this quarter	1.0
Distributions this quarter	8.0
Net asset value (NAV)	90.0

Holding	Fair value ($m)	Update from the GP
Northfield Components (industrial parts)	45.0	EBITDA ahead of plan and debt paid down. Valued using market multiples. A sale process has begun, and the GP expects to exit next year.
A payroll software company	30.0	Revenue growing steadily. Valued using market multiples of comparable companies.
A group of veterinary clinics	14.0	Trading below plan, and marked down this quarter. An add-on acquisition of a smaller clinic group, to be funded partly by the fund, is expected next quarter.
Cash less liabilities	1.0
Total NAV	90.0

Distributions to date came from the sale of two earlier holdings, the second completed this quarter. All three remaining holdings are unlisted and valued at fair value by the GP each quarter. They are Level 3 investments. The quarterly figures are unaudited.

Lakeshore Teachers' Retirement Plan: capital account statement, end of year 5 (illustrative)

Commitment summary	$m
Commitment (20% of the fund)	20.0
Contributions to date	17.0
of which: investments and fund expenses	15.0
of which: management fees	2.0
Unfunded commitment	3.0
Distributions to date	7.0

Capital account	This quarter ($m)	Inception to date ($m)
Beginning capital account	19.0	0.0
Plus: contributions	0.2	17.0
Less: distributions	(1.6)	(7.0)
Plus: share of net gains, after fees and expenses	0.4	8.0
Ending capital account (share of NAV)	18.0	18.0