General Partner (Gp). If A Fund Is Created Then Obliviously
965 WordsMar 4, 20174 Pages
General Partner (GP)
If a fund is created then obliviously you need a person to manage it. This is done by General Partner (GP). GP makes all decisions about the private equity fund and is also in charge of managing the fund 's portfolio. The portfolio will contains all of the fund 's investments.
General partner is paid either by way of a management fee or it can be by way of compensation. Management fee is a fixed percentage of total amount of the fund’s capital. Generally this fee range from 1% to 2% annually of the capital committed.
For example if Assets under management is 100bn than a 2% management fee would be $2bn. These fees are utilised for admin purpose and to cover expense such as salaries, deal fees paid to investment…show more content…
So GP contributed only 5% in the fund.
The GP agter receiving funds would invests all of the capital in acquiring companies. As few years pass by, they exit all their portfolio companies for $2B total. The LPs get $ 860Mn back first — that’s returning their capital. That leaves $1.14 B left, and it’s divided up 80 / 20 between LPs and GP. So the LPs get $ 912M and the GP gets $228M. So the GP invested $40M at the start, but gets back $200M in profits. GP thus made a 5x return in this fund.
Sometimes carried interest is in form of equity.
Interest in a fund is allocated as shares. This interest is based on each Limited Partner’s capital contribution, with a certain percentage of these shares (which would be typically 20%) allocated to the General Partner as carry. Carry shares more often than not have a multi-year vesting period that tracks investments made.
Equity carry is split between senior executives at the private equity firm. There are many flavors of carried interest so doing an apples to apples comparison of two different carry packages is often difficult.
Performance fees motivate the private equity firms to generate superior realized returns. These fees are intended to align the interests of the general partner and its LPs.
However, many PE firms allow this performance fee post Hurdle rate. So the General Partner will receives the carry that is performance fee only when the fund generates profits above a certain