problem 1.1:

DGI Private Fund III is the third private equity fund raised by DGI and Co, a private equity firm located in Chicago. The limited partners have committed $100 MM under a 2/20 fee structure. Assume that the entire committed capital is requested by DGI and Co at the outset and that the fund has a five-year investment horizon which is when all investments will be liquidated and the resulting proceeds minus the fees will be returned to the Limited partners. Assume that no interest will be earned on any cash balance kept in the fund. No investment of the fund is revalued prior to the investments exit. Assuming that the annualized returns required by the limited partners on the investment in the fund are 20%, calculate the annualized returns that must be required by the general partner on the underlying investments. Calculate the fees paid to the general partner on a year-by-year basis.