Private Equity Portfolio Company Fees

76 Pages Posted: 15 Dec 2015 Last revised: 2 May 2016

Ludovic Phalippou

University of Oxford - Said Business School; University of Oxford - Oxford-Man Institute of Quantitative Finance

Christian Rauch

American University of Sharjah

Marc P. Umber

Frankfurt School of Finance & Management

Date Written: April 5, 2016

Abstract

In private equity, General Partners (GPs) may receive fee payments from companies whose board they control. This paper describes the related contracts and shows that these fee payments sum up to $20 billion evenly distributed over the last twenty years, representing over 6% of the equity invested by GPs on behalf of their investors. Fees do not vary according to business cycles, company characteristics, or GP performance. Fees vary significantly across GPs and are persistent within GPs. GPs charging the least raised more capital post financial crisis. GPs that went public distinctively increased their fees prior to that event. We discuss how results can be explained by optimal contracting versus tunneling theories.

Keywords: Private Equity, Monitoring Fees, Transaction Fees, Compensation, Corporate Governance, Leveraged Buy-Out

Suggested Citation

Phalippou, Ludovic and Rauch, Christian and Umber, Marc P., Private Equity Portfolio Company Fees (April 5, 2016). Saïd Business School WP 2015-22. Available at SSRN: https://ssrn.com/abstract=2703354 or http://dx.doi.org/10.2139/ssrn.2703354

Ludovic Phalippou (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

University of Oxford - Oxford-Man Institute of Quantitative Finance ( email )

Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom

Christian Rauch

American University of Sharjah ( email )

P.O. Box 26666
University City
Sharjah, Greater Dubai Area
United Arab Emirates

Marc P. Umber

Frankfurt School of Finance & Management ( email )

Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany

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