Private Equity Business Model
How are most private equity firms compensated? I know they will occasionally invest in their own funds. Do they charge their stakeholders a flat annual fee plus keep a percentage of investment performance (similar to HF's 2%, 20%)? Or do they charge a management fee as a percentage of invested assets?
Thanks
hedge funds, charge a management fee plus take a portion of profits. They pay themselves well, although its not necessarily the 2/20% rule of most HF's, some take 25-40% of profits realized once the asset is liquidated (Bstone, Bain, etc). Also, usually management fee charged after funds have been invested (i.e. buyout occurs), plus many pay themselves a M&A fee and an on-going management fee charged to the portfolio company.
2/20 is the norm, and I believe that the 2% management fee is on committed capital rather than invested capital.
Also, the 20% carry is generally above a certain return threshold (on a deal-by-deal basis, not over the entire fund)
Some funds (Bain, Golden Gate, Providence until recently) take more than 20% carry, but no one (LPs) would pay away 40% of the upside, unless it was only above a really high return threshold.
Tempore voluptatibus ad minima. Totam voluptatem quam nisi. Laborum perferendis enim eum saepe porro itaque. Earum non corporis architecto non. Provident distinctio quod et omnis aut.
Molestiae quos dicta eos nemo consequatur perspiciatis. Commodi illum nisi et velit enim et in. Animi necessitatibus doloremque voluptates ipsam similique omnis minima. Enim in deleniti doloribus et id.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...