Investment Partnerships in Quicken

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 TVPI (Total Value per Invested $), which is the value of their current holding + distributions divided by invested capital. They also look at DPI (Distributions per Invested $) 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. 

To access the Enter Transactions wizard, click Enter Transactions at the top of any of your 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 record any cash or stock distributions received. The user can specify the account to deposit the funds or securities. Quicken will enter the appropriate transactions.

Quicken records the distribution value, less any capital amount being returned, as a MiscExpX transaction in the investment account containing the partnership interest. The category for the MiscExpX is Realized Gain for cash and Unrealized Gain for securities. The capital returned is recorded as a RtrnCapX transaction in the same account.

For cash distributions, the transfer account is the account in which the funds are deposited. This shows up in two components if a return-of-capital amount is specified.

For stock distributions, the transfer account is a self-transfer to reflect that there is no actual cash change. The securities received list as an Added transaction in the specified investment account (the self-transfer component of the Added transaction offsets the other self-transfers). The Added transaction will set the cost basis and cost basis date as provided. 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 LP interest by the value 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.

Partnership – Set Value

The Set Value action allows you to enter the total value of your partnership interest and have Quicken make the appropriate price history entry to reflect this. Note that this value is the remaining value in the fund, leaving aside the value of distributions that have occurred.

Investment Partnership Reports

Quicken provides two reports, the Investment Partnership Summary Report and the Investment Partnership Detail Report, for you to track your investment results. These reports do not appear on the Reports -> Investing menu unless at least one Inv Partnership security exists.

Investment Partnership Summary Report

This report summarizes capital commitments (total, remaining, paid-in), the value of distributions received, and the current value. The DPI (Distributions per Invested $) is Distributions divided by Paid In. The TVPI (Total Value per Invested $) is Distributions + Current Value divided by the amount Paid In. The IRR is calculated based on the cash flows, as shown in the Detail Report (see below).

Investment Partnership Detail Report

Tax Tracking

Quicken accurately tracks the pre-tax investment performance of LP interests in investment partnerships. However, the information provided by funds at the time when distributions occur can limit Quicken's ability to provide tax reporting for planning and tax preparation when the distributions occur. For example, cash distributions may not have detailed information about the amount of capital returned in the distribution and the income allocation between ordinary income and short-term and long-term capital gains.

Accordingly, Quicken recommends that for tax planning and preparation, users rely primarily on the tax-related information provided by the partnership, as found in the K-1s and capital account statements.

Note for our Canadian Customers

The following terms will be different in the Canadian releases of Quicken.

Canada: "Cheque" / United States: "Check"
Canada: "Colour" / United States: "Color"
Canada: "Centre" / United States: "Center"
Canada: "Realise" / United States: "Realize"
Canada: "Behaviour" / United States: "Behavior"
Canada: "Analyse" / United States: "Analyze"