CFA Level III Private Markets Cheat Sheet: Case Checks
Check fund fees and carry, valuation bridges, claim waterfalls, property cash flow and commitment liquidity in Private Markets cases.
Use this reference after attempting a case. Keep the investor, valuation date, currency, claim and contractual terms visible before choosing inputs. These checks complement the common-core allocation, derivatives, performance and professional-duty material.
Put each amount on the right basis
| Case evidence | Check before using it |
|---|---|
| Fund commitment | Separate the obligation from amounts called, invested or recorded in NAV. |
| Fee quotation | Identify commitment, invested-capital or NAV base and payment dates. |
| Carry waterfall | Apply return of capital, preferred return and any catch-up in the stated order. |
| Headline financing valuation | Compare share-class preferences, dilution and measurement dates. |
| Security or guarantee | Identify the obligor, collateral pool, priorities and enforceable support. |
| Quoted cash yield | Distinguish operating income, returned capital and noncash PIK accrual. |
Reconcile value and investor returns
Enterprise value is not the equity claim. With enterprise value \(EV\), net debt \(ND\) and equity value \(E\), a simple structure gives:
\[ E=EV-ND. \]Apply ownership and dilution to the appropriate equity class. Do not allocate a preferred financing’s headline value pro rata to common shares without evaluating their different rights. In a buyout bridge, separate EBITDA growth, multiple changes, debt repayment, distributions and transaction costs; use the attribution convention given in the case.
LP performance measures answer different questions. Let \(D\) be cumulative distributions, \(P\) paid-in capital and \(NAV\) the residual value:
\[ \mathrm{DPI}=\frac{D}{P}. \]\[ \mathrm{TVPI}=\frac{D+NAV}{P}. \]PIK adds to a future claim rather than current cash. A subscription line can delay LP contributions and raise reported IRR while interest reduces the value multiple. Evaluate the full dated cash flows, not only the headline return.
Trace cash through the asset
| Asset or decision | Decisive boundary |
|---|---|
| Distressed debt | Allocate realizable value by the supplied priority rules; a secondary purchase does not provide issuer liquidity. |
| Income property | Match the capitalization rate with pre- or post-reserve cash flow; deduct immediate repairs once at their actual dates. |
| Property equity | NOI still has to fund debt service, capital expenditure and restricted reserves before distribution. |
| Infrastructure | Availability, volume, price caps and indexation govern revenue; essential-service status alone creates no guarantee. |
| Concession renewal | Value only the rights retained through expiry, including specified handback costs or compensation. |
| Timber or farm | Separate biological growth from cash receipts, and commodity prices from production, water or access constraints. |
A useful refinancing test compares the maturing principal with the debt supportable by current collateral and coverage. Passing an LTV test does not establish that the same loan passes DSCR. Retained sponsor support finances a shortfall only when its amount, timing and enforceability are established.
Test the LP’s ability to implement
Forecast reserves at every material payment date. A December distribution cannot fund a September call without an available bridge. Uncalled commitments count in the relevant exposure policy but do not automatically enter NAV or become immediate cash payments.
Review concentration through funds, holding companies, tenants and public payers. Different vehicle names or sectors can share one borrower, contractor, refinancing market or economic driver. Smooth appraisals do not create economic liquidity.
When a question changes an assumption, identify its starting baseline and apply the change only to that question. For a recommendation, check every binding mandate, cash and governance condition before comparing expected returns. Disclosure, a price haircut or more frequent reporting cannot independently supply missing authority or cure a prohibited investment.
Turn the calculation into a written decision
State the investment or financing decision, then identify the decisive valuation, covenant, control or exit assumption. Separate a return estimate from the contractual and cash-flow conditions needed to realize it. Use the Essay bank to practise this unaided before comparing the suggested response.