810080 gp 0210020 total payment to lp 180 total

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Unformatted text preview: l payment to LP = 180 Total payment to GP = 20 Corporate Finance, Tri Vi Dang, Columbia University, Fall 2013 10 Hurdle Rate or preferred return A minimum rate of return (e.g. 8-12%), which must be achieved before the fund manager can receive any carried interest payments. Corporate Finance, Tri Vi Dang, Columbia University, Fall 2013 11 Example (Preferred return) Limited partner provides: 100 Preferred return: 10% Final Cash flow: 200 Payback to LP: 110 Profit: 90 LP: 0.8*90=72 GP: 0.2*90=18 Total payment to LP = 182 Total payment to GP = 18 Remark: If final cash flow is smaller than 110, GP gets nothing. Corporate Finance, Tri Vi Dang, Columbia University, Fall 2013 12 Catch-up When there is a preferred return, GP can demand a catch-up before the 80:20 split of profit Corporate Finance, Tri Vi Dang, Columbia University, Fall 2013 13 Example (Preferred return and catch-up) Limited partner provides: 100 Preferred return: 10% Final Cash flow: 200 Payback to LP: 110 Catch-up for GP: 2.5 = 10/4 (10:2.5 = 4:1 or 80:20) Profit: 87.5 LP: 0.8*87.5=70 GP: 0.2*87.5= 17.5 Total payment to LP = 180 Total payment to GP = 20 Corporate Finance, Tri Vi Dang, Columbia University, Fall 2013 14 Transfer of an interest in the fund Private equity funds are not intended to be transferred or traded If LP wants to sell his stake, he needs the consent of the GP and other LP Corporate Finance, Tri Vi Dang, Columbia University, Fall 2013 15 Restrictions on the General Partner (covenants) - Restrictions on size of investment in any one firm - e.g. max 25% of committed capital in one portfolio firm - Restrictions on use of debt by partnership - Restrictions on investments in other asset classes Corporate Finance, Tri Vi Dang, Columbia University, Fall 2013 16 II.2.D. Overview of Deal Structure Corporate Finance, Tri Vi Dang, Columbia University, Fall 2013 17 Remark Once a PE firm raised a fund the fund manager make investments in portfolio companies. PE funds focus on different portfolio company investment...
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This document was uploaded on 02/16/2014 for the course ECON w4280 at Columbia.

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