Apr 23, 2019

Big-name private equity firms are asking for bigger cuts of investment profits

There is lots of private equity talk right now about "super carry," following a Financial Times story about how some big-name firms are asking for a bigger cut of investment profits.

The big picture: Carried interest, the percentage of profits taken by fund managers, has historically been 20% for private equity. But the FT reports on 30% carry structures in new funds from Altor, Bain Capital, The Carlyle Group, EQT Partners, Eurazeo and Vista Equity Partners.

What's happening: Recent PE returns have been strong, giving general partners more negotiating leverage over prospective limited partners. Kind of like right before the financial crisis.

  • But one important difference is that some of these funds also come with lower fixed management fees, or choose-your-own-structures that Bain Capital pioneered several years ago. That matters because many LPs believe that such a trade-off creates a stronger alignment of interest — whereas the 2006-2007 carry increases were cash grabs without concessions.
  • Plus, buyout fund hold periods are shrinking a bit, meaning that LPs can get have more timely performance data when making new commitments.

My thought bubble: To be clear, I typically side with limited partners when it comes to fee structures. It's their money. But "super carry" seems more worthy of a deep sigh than hyperventilation.

Go deeper: Low-risk investments are fueling more private equity repurchases

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