Recasting Private Equity Funds after the Financial Crisis: The End of 'Two and Twenty' and the Emergence of Co-Investment and Separate Account Arrangements

ECGI - Law Working Paper No. 231/2013

Lex Research Topics in Corporate Law & Economics Working Paper No. 2013-6

38 Pages Posted: 8 Nov 2013 Last revised: 4 Dec 2013

See all articles by Joseph A. McCahery

Joseph A. McCahery

Tilburg University - School of Law; European Banking Center (EBC); Tilburg Law and Economics Center (TILEC); European Corporate Governance Institute (ECGI)

Erik P. M. Vermeulen

Tilburg University - Department of Business Law; Signify (formerly known as Philips Lighting) - Legal Department; Tilburg Law and Economics Center (TILEC); European Corporate Governance Institute (ECGI); Kyushu University - Graduate School of Law

Date Written: November 8, 2013

Abstract

This article examines the post-financial crisis trends in the private equity industry. Although most research has followed the pre-crisis trends, we show that investors are demanding the inclusion of more investor-favorable compensation terms in limited partnership agreements. Our findings suggest that these new terms not only provide the investors with more favorable management fee and profit distribution arrangements, but also give them more control over the fund’s investment decisions. Importantly, the new pattern also reveals the inclusion of more straightforward co-investment rights. Besides the contractual ‘improvements’, we observe that investors want to see more skin in the game from the managers/general partners.

Keywords: AIFMD, carried interest, co-investment rights, limited partnership agreement, management fee, private equity, separate accounts

JEL Classification: G01, G24, G32, K20, K22, L22, L25

Suggested Citation

McCahery, Joseph A. and Vermeulen, Erik P.M., Recasting Private Equity Funds after the Financial Crisis: The End of 'Two and Twenty' and the Emergence of Co-Investment and Separate Account Arrangements (November 8, 2013). ECGI - Law Working Paper No. 231/2013; Lex Research Topics in Corporate Law & Economics Working Paper No. 2013-6. Available at SSRN: https://ssrn.com/abstract=2351816 or http://dx.doi.org/10.2139/ssrn.2351816

Joseph A. McCahery

Tilburg University - School of Law; European Banking Center (EBC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands
+31-(0)13-466-2306 (Phone)
+31-(0)13-466-2323 (Fax)

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Erik P.M. Vermeulen (Contact Author)

Tilburg University - Department of Business Law ( email )

Signify (formerly known as Philips Lighting) - Legal Department ( email )

Amstelplein 2
Amsterdam
Netherlands

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Kyushu University - Graduate School of Law ( email )

6-19-1, Hakozaki, Higashiku
Fukuoka, 812-8581
Japan

Register to save articles to
your library

Register

Paper statistics

Downloads
777
Abstract Views
2,516
rank
31,769
PlumX Metrics