MJ Hudson’s Fund Terms Research analyses the current terms and conditions of private equity and venture capital funds, comparing the results with the findings of MJ Hudson’s previous research. It discusses both the drivers behind current trends in terms and conditions, as well as the implications for both investors in private equity funds (LPs) and those managing such funds (hereafter referred to in this report as either Managers or GPs). This report aims to provide both LPs and GPs with an enhanced understanding of the current strengths and weaknesses of the fundamental economic, alignment and governance terms impacting private equity fund commitments.
Part I (Economics) (this report) examines the core economic terms that govern a private fund. It provides analysis of the levels and calculation methodologies of management fees (both during and post the investment period); the prevalence and nature of management fee discounts; and the operation of distribution waterfalls and carried interest models (including hurdle rates, ratchets and catch-up). Innovations in carried interest models and the distribution waterfall are examined, and deal-by-deal enhancement (i.e., interim clawbacks, carry escrows and guarantees of GP clawback obligations) are likewise covered.
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