The percentage column on a schedule of investments passes 100 by exactly the fund's net liabilities, and the largest of them is usually the carry accrual, not the borrowing.
A schedule of investments shows each position as a percentage of net assets, and the column passes 100 whenever the fund's liabilities exceed its cash and other assets. On the illustrative Harbourgate fund, investments of 287,800 against net assets of 277,450 sum to 103.73 per cent: an excess of 10,350, which is total liabilities of 20,600 less 10,250 of cash and other assets. The largest liability is not the borrowing but the accrued carried interest of 12,930; before it, the column is 99.11 per cent.
Worked in full in How to Read a Private Fund's Financial Statements by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
The total at the foot of the percentage column is the first figure many readers of a private fund's accounts notice, and the one most often explained wrongly. "The fund is levered" is the usual answer. It is partly right and mostly beside the point. The column measures investments against net assets, so it exceeds 100 by exactly the amount by which everything else on the balance sheet is a net liability. Which liabilities, and whether any cash sits against them, is what the reader has to work out.
The figures are those of Harbourgate Partners II, the fictional fund whose complete reporting pack the book prints, at the end of its fifth year. Amounts are in thousands.
| Line | Amount |
|---|---|
| Investments at fair value (cost 215,000) | 287,800 |
| Cash and cash equivalents | 9,450 |
| Interest and dividends receivable | 620 |
| Prepaid expenses and other assets | 180 |
| Total assets | 298,050 |
| Management fee payable | 1,240 |
| Accrued expenses and other payables | 385 |
| Subscription facility borrowings | 6,000 |
| Interest payable | 45 |
| Accrued carried interest | 12,930 |
| Total liabilities | 20,600 |
| Net assets | 277,450 |
Position percentage = fair value of the position ÷ net assets
Investments − net assets = total liabilities − (cash + other assets)
The second line is the balance sheet rearranged: net assets are investments plus other assets less liabilities. In Excel, with investments in B2, net assets in B3, total liabilities in B4 and cash and other assets in B5: =B2/B3 for the column total and =B4-B5 for the excess, which must equal =B2-B3. If it does not, the schedule does not tie to the balance sheet, and that is the first reconciliation to fail.
| Position | Cost | Fair value | % of net assets | % of total assets |
|---|---|---|---|---|
| Alderton Industrial Holdings | 42,000 | 68,500 | 24.69 | 22.98 |
| Brackwell Software | 28,500 | 61,200 | 22.06 | 20.53 |
| Eastvale Specialty Chemicals | 31,500 | 44,900 | 16.18 | 15.06 |
| Corville Health Services | 35,000 | 39,800 | 14.34 | 13.35 |
| Hallamshire Instruments | 22,000 | 30,400 | 10.96 | 10.20 |
| Dunmore Logistics | 26,000 | 24,100 | 8.69 | 8.09 |
| Garrowby Facilities, subordinated loan | 12,000 | 12,600 | 4.54 | 4.23 |
| Fernhill Retail Group | 18,000 | 6,300 | 2.27 | 2.11 |
| Total investments | 215,000 | 287,800 | 103.73 | 96.56 |
Investments exceed net assets by 10,350. The balance sheet says why: liabilities of 20,600 against cash, receivables and prepayments of 10,250. Of the liabilities, the accrued carried interest of 12,930 is the largest by far, the facility is 6,000, and the fee, expense and interest payables are 1,670 together. The carry accrual on its own is larger than the whole excess.
Take the carry out and the picture changes. Net assets before the accrual are 290,380, and investments are 99.11 per cent of them: below 100, with the cash covering the facility and the payables. The fund is not running a levered portfolio in any meaningful sense. It is reporting net assets after recognising the general partner's share of the unrealised gain as a liability, which is a presentation choice that not every fund makes.
Repaying the facility from cash does not change the column. Cash falls to 3,450, liabilities to 14,600, net assets stay at 277,450 and the total stays at 103.73 per cent. The borrowing only moves the total when it is invested: draw a further 6,000 and buy assets with it, and the column rises to 105.89 per cent.
| Presentation | Denominator | Investments % |
|---|---|---|
| As reported, net assets after the carry accrual | 277,450 | 103.73 |
| Facility repaid from cash | 277,450 | 103.73 |
| Net assets before the carry accrual | 290,380 | 99.11 |
| Total assets | 298,050 | 96.56 |
| A further 6,000 drawn and invested (investments 293,800) | 277,450 | 105.89 |
The point of the table is comparability. Two funds with identical portfolios can show 99 and 104 per cent at the foot of the same column because one accrues carry as a liability and the other leaves it inside the partners' capital. Concentration limits in an LPA are usually drafted against commitments or against net assets at the time of investment; check which, because a position at 24.69 per cent of net assets here is 22.98 per cent of total assets.
The total is a reconciliation; the rows are the information. The two largest positions, Alderton and Brackwell, are 46.75 per cent of net assets between them and carry 59,200 of the 72,800 of unrealised gain, 81.32 per cent of it. If Alderton's mark were 20 per cent optimistic, net assets before any reduction in the carry accrual would fall by 13,700, or 4.94 per cent; Brackwell, 12,240, or 4.41 per cent; both together, 25,940, or 9.35 per cent. The carry accrual would absorb part of each fall, so these are upper bounds on the hit to net assets. Those are the numbers worth carrying into a conversation with the manager, not the 103.73. What a fund's multiple looks like with its largest position removed is worked in a fund's multiple without its largest investment.
A column above 100 per cent means liabilities exceed cash and other assets, nothing more. Compute the excess, split it into carry, borrowing and payables, net off the cash, and rebase to net assets before carry when comparing funds: 103.73 per cent becomes 99.11 here. The free workbook for this case holds the whole Harbourgate pack with its twelve reconciliations live, so you can change a mark and watch which totals move.
Not necessarily. The excess equals total liabilities less cash and other assets. On the illustrative Harbourgate fund the excess is 10,350 while the subscription facility is only 6,000; the accrued carried interest of 12,930 is the largest liability. Repaying the facility from cash would leave the column at 103.73 per cent, because net assets do not change.
Financial statements of investment funds usually show them against net assets, which is why they can pass 100. Against total assets they cannot. On the illustrative fund the same investments are 103.73 per cent of net assets of 277,450 and 96.56 per cent of total assets of 298,050. For LPA concentration limits, use whatever base the agreement names, often commitments.
Accruing carry as a liability lowers net assets and raises every position's percentage. On the illustrative fund the 12,930 accrual takes net assets from 290,380 to 277,450 and the column total from 99.11 to 103.73 per cent. Funds that leave carry inside partners' capital report a lower total for the same portfolio, so rebase before comparing.
This article is one calculation from How to Read a Private Fund's Financial Statements. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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