Private Equity Portfolio Company Fees

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

See all articles by Ludovic Phalippou

Ludovic Phalippou

University of Oxford - Said Business School

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

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 )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
1,214
Abstract Views
4,921
rank
17,210
PlumX Metrics