Compensation Structure

Chapter 20, Private Equity - Opportunities and Risk

17 Pages Posted: 17 Jul 2014 Last revised: 31 Jan 2020

See all articles by Ji-Woong Chung

Ji-Woong Chung

Korea University - Department of Finance

Date Written: July 15, 2014

Abstract

This chapter explores compensation structure of PE funds. Actual fees that GPs earn and the economic incentives that they face are more subtle and complex than the traditional “2-and-20” rule suggests. This chapter examines the sources of these complexities especially focusing on the potential conflicts of interest that may arise between LPs and GPs due to particular forms of fee structure. The chapter also discusses the detailed procedures for calculating various fees under different fund terms and examines issues involving portfolio company fees. Finally, it reviews academic studies documenting the empirical magnitude of incentives for GPs, determinants of fee structure, and cross-sectional as well as time-series variations of compensation structure.

Keywords: Compensation structure, private equity, management fees, carried interest, portfolio company fees, catch-up provision, clawback clause, waterfall provision

JEL Classification: G24, G30

Suggested Citation

Chung, Ji-Woong, Compensation Structure (July 15, 2014). Chapter 20, Private Equity - Opportunities and Risk, Available at SSRN: https://ssrn.com/abstract=2466566 or http://dx.doi.org/10.2139/ssrn.2466566

Ji-Woong Chung (Contact Author)

Korea University - Department of Finance ( email )

Seoul, 136-701
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
17
Abstract Views
1,484
PlumX Metrics