3. How much does Grove Street charge for their services? What increment to performance is required to justify their fees?

3. How much does Grove Street charge for their services? What increment to performance is required to justify their fees? Using the information below construct a cash‐flow schedule with and without Grove Streets fees and carry. In analyzing the question, you may wish to assume that:

‐ Like CEV III, the next fund raised $500m. The money is draw down at the beginning of the first 6 years in the following pattern: $50m, $100m, $100m,$100m, $100m, $50m.

‐ The fund life is 12 years.

‐ The fees are paid out of drawn down capital for the first six years, for the next 6 years they are paid out of distributed capital.

‐ Proceeds are returned to GSA six years after the date of the original investment ‐ Initially assume that the proceeds are returns at a multiple of 2 on the original investment and that 15% is an appropriate discount rate.

‐ The annual management fee is 0.75% on committed capital. This fee is then halved in years 4, 5 and 6, and then halved again until year 12.

‐ Carried interest is 5% but can only be collected when committed capital has been returned. (You can ignore the effect of the hurdle rate)

‐ The basis for calculating profit is committed capital before fees (i.e. no double dipping)

how do i tackle this?