Private Equity Investments (2025 Level II CFA® Exam –Alternative Investment–Module 4)

In this CFA Level II Alternative Investments reading on Private Equity Investments, you’ll learn everything about buyouts, venture capital, fund structures, valuation, and performance measurement.

This lesson explains how private equity firms create value, align interests with portfolio managers, and manage risk using leverage. It also explores valuation techniques, exit strategies, and key formulas for calculating IRR, TVPI, DPI, RVPI, carried interest, and management fees that are critical for your CFA exam preparation.

Topics Covered:

Sources of value creation in private equity

Buyout vs Venture Capital characteristics

Fund structures, due diligence, and valuation methods

Risk and cost analysis in private equity

Exit strategies and their impact on returns

Calculations: DPI, RVPI, TVPI, carried interest, management fees

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Topic 8 – Alternative Investments
Module 4 – Private Equity Investments
0:00 Introduction and Learning Outcome Statements
5:30 LOS: Explain sources of value creation in private equity.
9:23 LOS: Explain how private equity firms align their interests with those of the managers of portfolio companies.
11:17 LOS: Compare and contrast characteristics of buyout and venture capital investments.
14:44 LOS: Interpret LBO model and VC method output.
23:33 LOS: Explain alternative exit routes in private equity and their impact on value.
25:01 LOS: Explain risks and costs of investing in private equity.
28:56 LOS: Explain private equity fund structures, terms, due diligence, and valuation in the context of an analysis of private equity fund returns.
33:55 LOS: Interpret and compare financial performance of private equity funds from the perspective of an investor.
36:46 LOS: Calculate management fees, carried interest, net asset value, distributed to paid in (DPI), residual value to paid in (RVPI), and total value to paid in (TVPI) of a private equity fund.

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