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Mill7 only handles closed-end funds.

All participants pay a share of the amount requested by the Fund Manager.

This share is calculated as a pro rata commitment of a participant as a part of the total commitment.

 

Draw down or Capital call

Each participant will pay their pro rata share of the total investments, regardless of their entry date in the Fund ( True-up or equalisation).

After a closing, a capital call or a draw down is issued to raise capital. This capital is used for investments and payments to the Fund manager like the management fee.

The pro rata share of each participant is calculated in every draw down.

 

Re-balancing

By default, new participants will lead to a change in the pro rata share of all participants.

This can lead to a re-balancing of the capital invested per investor.

Mill7 knows two ways of calculations when new investors enter.

 

Example 1:

The total capital called is 1.000,00 in a fund, and a new investor participates in the fund.

After closing, the new investor will have to pay an amount based on the pro rata commitment after the closing.

When a new investor participates with a pro rata commitment of 10%, the investor will have to pay 100,00.

 

The 100,00 will be returned to the existing investors. Mill7 will reserve this amount in a deposit per investor using it for future calls.

This means that the total amount paid by investors increases and that due to the deposit, the amount paid pro rata differs from the commitment pro rata.

The amount paid minus the deposit will show the same pro rata rate.

 

In this example, the total amount paid by investors is 1.100,00, the amount in deposit is 100,00.

 

Example 2:

The total capital called is 1.000,00 in a fund, and a new investor participates in the fund.

After closing, the new investor will have to pay an amount based on the pro rata commitment after the closing.

In this case no amount will be refunded, instead the capital grows and the new investor will have to pay 10% of the total capital including his paid capital.

 

This means in our example that the called capital of 1000 is 90% of the total capital called.

This means ( 1000 / 90 * 100 = ) 1111,11 is the new capital.

The amount to be paid by the new investor is 111,11 , this is 10% of the total capital called.

There will be no shifting of amounts to a deposit, the amount paid pro rata will equal the commitment pro rata.

 

Distribution notices

The waterfall method is used in the Funds module to generate distribution notices for all participants in a fund.

 

The Waterfall is the colloquial term for the way partners distribute the share of the profit in an investment.

The goal of a private equity investment structure is to align the interests of the various parties who invest in an individual deal or a private equity fund.

The top-down nature of the cash flow distributions indicates the relative priority of the parties at different levels.

 

The cash-flow distribution is divided in four clear steps:

 

1.Return of Capital

The first step of the waterfall is to return the total amount invested by the participants ( investors).

All capital raised for the investments must be distributed before step 2.

 

2.Hurdle (Preferred Return)

The second step is to distribute a preferred return, a percentage of the invested amount by a participant.

This so called hurdle is calculated like interest on a bank amount or an outstanding loan. The hurdle will be calculated on the date of the notice.

The hurdle percentage is set at the fund settings.

There is also an option to calculate the hurdle as a fixed percentage over the invested capital, this can be set at the fund settings.

 

To calculate the number of days in a period and the number of days per year, the calculation method in the Fund settings is used, the method is explained here.

When an invested amount does not change for a period longer than a year, the calculation will be performed annually.

 

Example

 

 

01-01-2018        There was no invested amount on this date ( first call).

 

 

 

 

 

 

The total Hurdle amount of 21.747,15 must be returned to the investors before step 3.

 

3.Catch-up

The third step of the waterfall is the catch-up fee for the fund manager or general partner.

The fee percentage is set at the fund settings.
There is also an option to calculate the catch-up over only the calculated hurdle, this can be set at the fund settings.

 

The amount is calculated over the total invested amount ( step 1 ) and the calculated hurdle ( step 2).

With a catch-up fee of 20% the amount of the catch-up fee in our example would be:

 

 

The catch-up will only be paid up if the total amount distributed is higher than 516.611,35 in our example.

The waterfall moves to step 4, when the amount distributed is higher than 619.933,62 (total step 1 + 2 + 3).

 

 

 

4.First split

The fourth step of the waterfall is the first split phase which will be distributed to both the investor and the fund manager or general partner.

The fee percentage is set at the fund settings.
 

The amount is calculated over the total invested amount ( step 1 ) times 2, minus the total invested amount ( step 1 ) and the calculated hurdle ( step 2).

With a first split man. fee of 15% the amount in our example would be:

 

 

 

 

5.Second catch-up

The fifth step of the waterfall is the second catch-up phase for the fund manager or general partner.

The fee percentage is set at the fund settings.

 

The amount is calculated over calculated hurdle ( step 2 ) plus the first split amount investors ( step 4 ) minus total catch-up ( step 3 ) and the first split amount managers ( step 4 ).

With a second catch-up fee of 20% the amount would be:

 

 

6.Second split

The sixth step of the waterfall is the second split phase which will be distributed to both the investor and the fund manager or general partner.

The fee percentage is set at the fund settings.
 

The amount is calculated over the total invested amount ( step 1 ) times 3, minus the total invested amount ( step 1 ) , the calculated hurdle ( step 2) and the the first split amount investors  ( step 4 ).

With a second split man. fee of 25% the amount in our example would be:

 

 

 

 

7.Carried Interest

In the last step of the waterfall the remaining distribution amount is divided between the fund manager and the participants.

The fund manager's share is a percentage set at the fund settings.

 

The amount available for this step is the remaining distribution amount after step 6.        

 

In our example the total amount of the distributions is 2446.913,58

The remaining distribution after step 1,2,3,4,5 and 6:  2446.913,58 - 1708.743,79 = 738.169,79

 

If the management share is 25% the fund manager will receive 25% of 738.169,79, the rest will be returned to the investors.