Читать книгу Alternative Investments - Hossein Kazemi - Страница 53

In the case of multiple projects within private equity funds, two approaches are used for determining profits and distributing incentive fees. Carried interest can be fund-as-a-whole carried interest, which is carried interest based on aggregated profits and losses across all the investments, or can be structured as deal-by-deal carried interest. Deal-by-deal carried interest is when incentive fees are awarded separately based on the performance of each individual investment.

APPLICATION 3.5.4A

Consider a fund that makes two investments, A and B, of $10 million each. Investment A is successful and generates a $10 million profit, whereas Investment B is a complete write-off (a total loss). Assume that the fund managers are allowed to take 20 % of profits as carried interest. How much carried interest will they receive if profits are calculated on a fund-as-a-whole (aggregated) basis, and how much will they receive if profits are calculated on a deal-by-deal (individual transaction) basis?

On the fund-as-a-whole basis, the fund broke even, so no incentive fees will be distributed. On the deal-by-deal basis, Investment A earned $10 million, so $2 million in carried interest will be distributed to the managers.

Participating in every investment's profit, or deal-by-deal carried interest, can be problematic because the general partner can make profits on successful investments while having little exposure to unsuccessful transactions. As the limited partners take the bulk of the capital risk, this approach significantly weakens the alignment of interests. A fund-as-a-whole carried-interest approach protects the interests of the LPs but may be less effective in attracting talented managers. The fund-as-a-whole scheme may entail the risk of frustrating the fund managers, as their rewards may be deferred for years until all deals can be aggregated. Carried-interest distribution is typically one of the most intensively negotiated topics. The amount of the payment is often not as much of an issue as the timing of the payment. In practice, carried-interest schemes include elements of both approaches in order to circumvent their respective limitations.