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Answer: Private equity returns are often characterized by the J-curve effect due to staggered capital calls.
**Explanation:** - **Option A** is incorrect because private equity management fees are typically based on the total committed capital, not just the capital called. This ensures that the fund manager is compensated for the entire commitment, even if capital is called in stages. - **Option B** is correct. The J-curve effect describes the typical pattern of private equity returns, where initial negative returns (due to fees and setup costs) are followed by positive returns as investments mature. This is often a result of staggered capital calls and the time required for investments to generate returns. - **Option C** is incorrect because private equity managers do have discretion over the timing of capital calls and distributions. This discretion is a key aspect of their role, allowing them to optimize the timing of cash flows to maximize returns.
Author: LeetQuiz Editorial Team
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Which of the following statements about private equity performance evaluation is most accurate?
A
Private equity fund management fees are calculated on total committed capital, not just the capital called.
B
Private equity returns are often characterized by the J-curve effect due to staggered capital calls.
C
Private equity managers have full discretion over the timing of capital calls and distributions.
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