Investment Partnerships are limited partner (LP) interests in venture capital and private equity funds. They typically involve a commitment to invest between $50,000 and $5,000,000 in a fund over a period of several years. This amount is called the Capital Commitment. Returns to the investor come over many years (3 to 10 years or sometimes even longer). Investment Partnerships pay out as cash distributions or equity (stock) distributions. Cash distributions usually result from realized gains or losses, which are reported in a K-1 to the investor. Stock distributions are generally non-taxable, and the investor inherits the cost basis and cost basis date from the fund.
Investors in a fund receive a quarterly report that includes a statement of their capital account; this is how much their investment is currently worth – distributions already received are not part of that value. Typically, the fund's value as a ratio to dollars invested starts around 1.0, increases as the fund reports unrealized gains on investments it has made and then decreases again as distributions occur. Investors measure their investment performance by looking at the MOIC (multiple of invested capital), which is the value of their current holding + distributions divided by invested capital. They also look at Cash MOIC (the value of distributions divided by invested capital) and IRR, which measures the internal rate of return on their cash investments, distributions over time, and remaining value.
The data model in Quicken is that the LP Interest in an investment partnership is a security with Security Type Inv Partnership. Quicken assigns the asset class Alternatives to these securities. The user's cash investment results in one share in the LP interest per dollar invested. The price of the investment per share is the net value of the LP interest divided by the number of shares. Users can update the price per share to reflect the value of their capital account.
When the user fulfills a capital commitment, Quicken uses a Bought transaction to increase the number of shares. When there is a distribution, Quicken records transactions to reflect the amount of invested investment gains and the amount of capital returned and to cause the cash or stock distributed to appear in the appropriate Quicken account.
Quicken tracks the cost basis for the LP Interest as the cumulative capital contribution less any cost basis returned in cash or stock distributions. Because of the complexity of tax reporting for investment partnerships, users should rely primarily on the reporting (Capital Account statements and K-1s) provided by the fund for tax preparation and planning.
Entering Investment Partnership Transactions
To make tracking investment partnerships easier, Quicken has added five Investment Actions in the Enter Transactions wizard for investment accounts.
Partnership – Set up
...
Setting up the first Investment Partnership also enables the Investment Partnership Summary and Investment Partnership Detail reports on the Reports/Investing menu.
Partnership – Close Out
This action sets the partnership share balance (and thus market value) to zero, and marks the partnership as hidden, causing it to be excluded from reports by default. It is intended to be used for partnerships that are no longer active. Note that by customizing the partnership reports, these Closed/hidden partnerships can still be included in reports.
Partnership – Capital Call
...
Quicken provides an option, on by default, to increase the market value of the LP Interest by the value of the partnership interest by the value of the capital call.
Partnership – Distribution
...
Quicken provides an option, off by default, to decrease the market value of the LP interest by the value of the distribution. For a large distribution that will have a material impact on the remaining value, users may wish to enable this option.
Partnership – Set Value
The Set Value action allows a user to enter the total value of their partnership interest and have Quicken make the appropriate price history entry to reflect this. Note that this value is the "remaining value" in the fund, leaving aside the value of distributions that have occurred.
Investment Partnership Reports
Quicken provides two reports, the Investment Partnership Summary Report, and the Investment Partnership Detail report to allow users to track their investment results. Note that these reports do not appear on the Reports/Investing menu unless at least one security of type "Inv Partnership" has been created.
Investment Partnership Summary Report
This reports summarizes capital commitments(total, remaining and paid-in) as well as the value of distributions received and the current value. The Cash MOIC ("Multiple of Invested Capital") is Distributions divided by Paid In. The Total MOIC is Distributions + Current Value divided by the amount Paid In. The IRR is calculated based on the cash flows, as shown in the Detail report (see below).
Investment Partnership Detail Report
The Investment Partnership provides the detailed cash flows that are used in calculating the IRR for each fund and for all the funds together. It also provides additional information such as the Creation date and Tax ID.
...