Investment Partnerships are limited partner (LP) interests in venture capital and private equity funds. They typically involve a commitment 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
Before using the Partnership – Set Up action, users should choose which investment account will contain the transaction history for their LP interests. The investment account should be manual. Quicken recommends using a single account with a name like PE & VC Funds. However, Quicken does not require you to track all Investment Partnerships in a single account.
Setting up a partnership creates a security of type Inv Partnership. In addition, it allows the user to specify the capital commitment amount, the establishment date for the LP interest, and an optional Tax ID for the partnership.
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, excluding the partnership from reports by default. Use this transaction for partnerships that are no longer active. By customizing the partnership reports, you can still include these closed/hidden partnerships in reports.
Partnership – Capital Call
Use the Capital Call action to record an investment in a partnership. By specifying an existing Quicken account as the source of funds, users can cause Quicken to also create the bank or brokerage transaction from the funding source account.
Quicken provides an option (turned 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
Distribution transactions are used to record a any cash or stock distribution distributions received. The user can specify the account where to deposit the funds or securities are to be deposited and . Quicken will enter the appropriate transactions.
Quicken records the distribution value of the distribution, less any capital amount being returned, as a a MiscExpX transaction transaction in the investment account containing the partnership interest. The category for the the MiscExpX is " is Realized Gain" for cash, and " for cash and Unrealized Gain" for for securities. The capital returned is recorded as a a RtrnCapX transaction transaction in the same account.
For cash distributions, the transfer account is the account where in which the funds will be deposited (which will show are deposited. This shows up in two components if a return-of-capital amount was is specified).
For stock distributions, the transfer account is a self-transfer , to reflect that there is no actual cash change. The securities received will be records as an "Added" transaction list as an Added transaction in the specified investment account (the self-transfer component of the Added transaction offset offsets the other self-transfers). The The Added transaction transaction will set the cost basis and cost basis date as provided, and . Quicken will also make the appropriate price history entry to reflect the current value of the securities received.
Quicken provides an option, off by default, to decrease the market value of the the LP interest interest by the value of the distribution. For of the distribution. However, users may wish to enable this option 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 The Set Value action action allows a user you to enter the total value of their your partnership interest and have Quicken make the appropriate price history entry to reflect this. Note that this value is the "the remaining value" value in the fund, leaving aside the value of distributions that have occurred.
Investment Partnership Reports
Quicken provides two reports, the the Investment Partnership Summary Report, and the and the Investment Partnership Detail report to allow users Report, for you to track their your investment results. Note that these These reports do not appear on the Reports/Investing the Reports -> Investing menu unless at least one security of type "one Inv Partnership" has been created security exists.
Investment Partnership Summary Report
This reports report summarizes capital commitments (total, remaining and , paid-in) as well as and the value of distributions received and plus the current value. The The Cash MOIC ("Multiple of Invested Capital") is Distributions is Distributions divided by by Paid In. The The Total MOIC is MOIC is Distributions + Current Value divided divided by the amount amount Paid In. The The IRR is is calculated based on the cash flows, as shown in the the Detail report Report (see below).
Investment Partnership Detail Report
The The Investment Partnership provides Detail Report provides the detailed cash flows that are used in calculating the the IRR for for each fund and for all the funds together. It also provides additional information such as the the Creation date and Date and Tax ID.
Tax Tracking
Quicken provides accurate tracking of the pre-tax investment performance of LP interests in investment partnerships. However, Quicken's ability to provide tax reporting for planning and tax preparation is limited by the nature of the information provided by funds at the time when distributions are made. For example, cash distributions may not be accompanied by detailed information about the amount of capital being returned in the distribution, and about the allocation of the income between ordinary income, short-term and long-term capital gains.
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