CASH FLOW RETURN PROFILE

The cash flow generation profile of private equity investments is another important investment feature. Private equity is fundamentally long-term in nature because cash is typically not returned to the investor for a number of years (distributions). On the other hand, an investor will usually pay in its capital commitment to a fund over a period of time based on the capital needs of a given fund investment (drawdowns). The cumulative cash flow is the net of drawdowns and distributions accumulated over time. The hypothetical cash flow profile at right shows a break-even period of 5-6 years for a fund that is successful in returning capital to investors. It should be noted, however, that some successful funds may return capital earlier, while unsuccessful funds may never provide a return on investor capital.