Executive summary
Project Cedar is a fictional alternative asset manager built around three economically different sources of value: recurring fee-related earnings, episodic carried interest and balance-sheet investments. The distinction matters because each stream has a different duration, volatility and claim on capital.
The base case implies that most value comes from the recurring fee stream. Carried interest and invested capital remain meaningful, but treating them as separate adjustments prevents a strong realisation year from inflating the multiple applied to recurring earnings.
The model is most sensitive to the spread between weighted average cost of capital (WACC) and terminal growth, followed by the margin path embedded in recurring free cash flow.
Business overview
Project Cedar earns management fees on fictional long-duration investment vehicles, performance income when return thresholds are achieved, and investment returns on capital held alongside those vehicles. It also carries central costs and net debt. This case does not represent a real company, security, legal entity or investment fund.
The analytical structure follows the economics rather than the reporting line items:
- Forecast management-fee revenue from the capital base and blended fee rate.
- Translate that revenue into fee-related earnings after compensation and central operating costs.
- Value recurring unlevered cash flow through a DCF.
- Add risk-adjusted carried-interest value and balance-sheet capital separately.
- Deduct net debt and divide by diluted shares.
This structure makes the valuation easier to challenge. A reader can change the recurring margin view without implicitly changing the assumed value of carried interest, or stress realisations without rewriting the operating model.
Historical performance
The fictional history shows revenue increasing from $210.0 million in 2024A to $238.0 million in 2025A. Forecast growth then fades gradually as the capital base matures. Fee-related margin expands from 26.5% in 2025A to 30.3% in 2029E, reflecting slower cost growth rather than a sudden change in fee rates.
Historical and forecast financial summary
$ millions, except percentagesScroll table horizontally
| Financial measure | 2024A | 2025A | 2026E | 2027E | 2028E | 2029E |
|---|---|---|---|---|---|---|
| Revenue | 210.0 | 238.0 | 267.0 | 297.0 | 327.0 | 357.0 |
| Revenue growth | n/a | 13.3% | 12.2% | 11.2% | 10.1% | 9.2% |
| Fee-related earnings | 54.0 | 63.0 | 73.0 | 84.0 | 96.0 | 108.0 |
| Fee-related margin | 25.7% | 26.5% | 27.3% | 28.3% | 29.4% | 30.3% |
| Net income | 43.0 | 51.0 | 58.0 | 67.0 | 76.0 | 85.0 |
The table marks estimated periods with an E suffix and separates them from historical periods. The apparent precision should not be mistaken for certainty; the figures form a coherent base case for comparing scenarios.
Operating drivers
Three drivers explain most of the recurring case.
Capital base and fee rate
Management-fee growth depends on the investable capital base, deployment timing and the blended fee rate after step-downs. The base case assumes growth slows as earlier vehicles mature, while new fundraising broadly offsets realisations. It does not assume a permanent acceleration.
Compensation and operating leverage
Compensation remains the largest recurring expense. Margin expansion therefore requires revenue to grow faster than headcount and infrastructure costs. The model assumes measured leverage, not wholesale cost removal. If compensation stays fully variable with revenue, the forecast margin would be too high.
Cash conversion
Fee-related earnings convert well to unlevered cash flow because depreciation and capital expenditure are modest. Working-capital investment still rises with the platform. That keeps free-cash-flow growth below fee-related-earnings growth in several forecast years and avoids treating accounting earnings as immediate cash.
Valuation
The recurring fee stream is valued through the DCF below. A risk-adjusted $155.0 million is then added for carried interest and $210.0 million for balance-sheet capital. These figures are case assumptions, not marks derived from funds, transactions or filings. Net debt of $160.0 million is deducted after the enterprise-value bridge.
The separation produces a more useful discussion than one blended multiple:
- A recurring-cash-flow question belongs in WACC, terminal growth and margin assumptions.
- A carried-interest question belongs in timing, probability and concentration.
- A balance-sheet question belongs in asset value, liquidity and any discount to carrying value.
DCF
The base DCF uses a 9.5% WACC and 2.5% terminal growth rate. Cash tax is 25.0%. Unlevered free cash flow is calculated as net operating profit after tax (NOPAT) plus depreciation, less capital expenditure and the change in net working capital. Discount factors begin at the end of 2026E and are applied consistently through 2030E.
Key assumptions
Recurring cash flow case
The DCF values fee-related cash flow. Carried interest and balance-sheet investments enter only after enterprise value is established.
- Tax rate
- 25.0%
- Weighted average cost of capital (WACC)
- 9.5%
- Terminal growth
- 2.5%
- Net debt ($ millions)
- 160.0
- Diluted shares (millions)
- 50.0
Unlevered free cash flow forecast
$ millions, except discount factorsScroll table horizontally
| Financial measure | 2026E | 2027E | 2028E | 2029E | 2030E |
|---|---|---|---|---|---|
| Fee-related earnings | 73.0 | 84.0 | 96.0 | 108.0 | 119.0 |
| Cash tax | (18.3) | (21.0) | (24.0) | (27.0) | (29.8) |
| Net operating profit after tax (NOPAT) | 54.8 | 63.0 | 72.0 | 81.0 | 89.3 |
| Depreciation and amortisation | 8.0 | 9.0 | 9.5 | 10.0 | 10.5 |
| Capital expenditure | (10.0) | (11.0) | (12.0) | (13.0) | (14.0) |
| Change in net working capital | (4.0) | (4.5) | (5.0) | (5.5) | (6.0) |
| Unlevered free cash flow | 48.8 | 56.5 | 64.5 | 72.5 | 79.8 |
| Discount factor | 0.9x | 0.8x | 0.8x | 0.7x | 0.6x |
| Present value of unlevered free cash flow | 44.5 | 47.1 | 49.1 | 50.4 | 50.7 |
Terminal value
- 2030E unlevered free cash flow ($ millions)
- 79.8
- Terminal growth
- 2.5%
- Terminal value ($ millions)
- 1,167.8
Equity value bridge
- Present value of forecast unlevered free cash flow ($ millions)
- 241.9
- Present value of terminal value ($ millions)
- 741.8
- Enterprise value ($ millions)
- 983.7
- Add: carried interest and balance-sheet capital ($ millions)
- 365.0
- Less: net debt ($ millions)
- (160.0)
- Equity value ($ millions)
- 1,188.7
- Diluted shares (millions)
- 50.0
- Implied value per share
- $23.8
The bridge reconciles forecast recurring cash flow to enterprise value, then adds carried interest and balance-sheet capital only once before deducting net debt. At the base assumptions, the result is approximately $23.8 per diluted share. That is an illustrative output, not a target price or recommendation.
Sensitivity
The matrix below holds the explicit forecast cash flows and adjustments made after calculating enterprise value constant while changing WACC and terminal growth. The base row and column are labelled, so the interpretation does not rely on colour alone.
Weighted average cost of capital (WACC) versus terminal growth sensitivity
Implied value per share ($)The base case is 9.5% WACC and 2.5% terminal growth, highlighted at their intersection.
Scroll table horizontally
| WACC ↓ / growth → | 2.0% | 2.3% | 2.5% | 2.8% | 3.0% |
|---|---|---|---|---|---|
| 8.5% | $25.7 | $26.4 | $27.2 | $28.0 | $28.9 |
| 9.0% | $24.1 | $24.7 | $25.4 | $26.0 | $26.8 |
| 9.5% | $22.7 | $23.2 | $23.8 | $24.4 | $25.0 |
| 10.0% | $21.5 | $21.9 | $22.4 | $22.9 | $23.4 |
| 10.5% | $20.4 | $20.8 | $21.2 | $21.6 | $22.1 |
The range is intentionally broad enough to expose the dependence on terminal value. A reader should not compress it into a single “correct” answer: the more useful question is which operating and risk assumptions would justify moving from one part of the matrix to another.
Scenario analysis
The scenarios move operating performance and valuation together. The bear case assumes slower revenue growth, weaker operating leverage and lower free cash flow. The bull case assumes stronger retention of the capital base and better cost absorption. The base column is shown between both alternatives for reference.
Bear, base and bull scenarios
$ millions, except percentages and per-share valuesScroll table horizontally
The base column is highlighted for reference.
| Measure | Bear | Base | Bull |
|---|---|---|---|
| Operating assumptions | |||
| 2025A–2029E revenue CAGR | 7.0% | 10.7% | 12.5% |
| 2029E fee-related margin | 27.5% | 30.3% | 32.5% |
| Cash-flow outputs | |||
| 2029E recurring UFCF | 59.0 | 72.5 | 88.0 |
| Valuation outputs | |||
| Enterprise value | 750.0 | 983.7 | 1,250.0 |
| Equity value | 955.0 | 1,188.7 | 1,455.0 |
| Implied value per share | $19.1 | $23.8 | $29.1 |
The range of $19.1 to $29.1 per share is not a probability distribution. It allows readers to compare outcomes directly without hiding the downside case.
Risks
- Fundraising and retention: a slower replacement of maturing capital would weaken the management-fee base before central costs can adjust.
- Realisation timing: carried interest can shift materially between periods and should not support recurring-cost commitments.
- Margin durability: compensation or infrastructure investment could absorb more of the revenue growth than the base case assumes.
- Valuation concentration: terminal value represents a substantial part of enterprise value, making the result sensitive to small changes in long-term assumptions.
- Balance-sheet liquidity: carrying value may not equal readily realisable value during stressed markets.
Catalysts
- Evidence that the fee-paying capital base is being replenished ahead of realisations.
- Recurring margin progression supported by operating data rather than temporary compensation timing.
- Cash conversion that tracks the forecast without a build-up in working capital.
- Realisations that validate, rather than merely accelerate, the risk-adjusted carry estimate.