Commitments made by a Fund to a Portfolio Asset
The cash outflows should be taken to be the amount actually invested in a Portfolio Asset at a given point in time, i.e. on a gross return basis. An Alternative Investment Fund in Estonia may commit itself to making a series of investments in a Portfolio Asset over an extended period of time. In such circumstances, the timing and amounts of only the individual past cash flows should be taken into account.
Equity received in lieu of cash
Any equity received by Alternative Investment Fund in Estonia in lieu of cash in respect of services rendered to a Portfolio Company (for instance, services of managers, provision of guarantees) should be recognised at the Fair Value of the consideration received.
Commitments made by Limited Partner to a Fund
An Limited Partner (LP) will commit itself to making a series of investments
in a fund over a period of time, up to their committed capital. The cash flows from investors should be taken to be the amount actually drawn down by a fund at given points in time. In such circumstances, the timing and amounts of only the individual past cash flows should be taken into account.
Net return to Limited Partners; carried interest and the unrealised portfolio
When calculating the net return to the Limited Partner (LP), as regards the valuation of the unrealised portfolio, appropriate provision should be made for the deduction of carried interest calculated on the basis of the assets being realised at the carrying value.
Depending upon the provisions of the prospectus of Alternative Investment Fund in Estonia, shares in companies / assets which are listed and distributed in-kind should be treated as set out by the Fund prospectus as to when they are treated as realised.
As regards the calculation of the gross return on realised investments only, a written-off investment should be. considered as having been realised as soon as the earliest of any of the following or like events takes place: when bankruptcy proceedings are instigated against a Portfolio Company/asset; when a Portfolio Company ceases to trade; when a Portfolio Company enters into arrangements with creditors which result in the investment being written down to zero; or when insolvency proceedings are begun.
Treatment of realisations with deferred consideration
Investments which have been completely sold, subject to a proportion of deferred consideration/earn-out, should be defined as realised investments. An estimate of the fair value of deferred proceeds or earn-out should be included at the reporting date.
Interest payments, dividends and capital gains received from portfolio companies that are paid net of tax withholdings should be grossed up so as to be treated as pre-tax cash flows for the measure of gross return. Withholding tax which would not be recoverable by a typical tax exempt Limited Partner (LP) should be excluded from such grossing up.
Timing of cash flows
Internal Rates of Returns (IRRs) are recommended to be calculated on the basis of daily or monthly cash flows. Daily cash flows should use the exact value date of the cash flow. When calculated on a monthly basis, the date attributed to each cash flow should be the same day of each month (e.g. the last day of the month).