Pay Now or Pay Later?: The Economics within the Private Equity Partnership
51 Pages Posted: 2 Apr 2016 Last revised: 15 Feb 2018
Date Written: March 1, 2017
The economics of partnerships have been of enduring interest to economists, yet it is not clear what profit sharing within a private partnership should look like. We examine over seven hundred private equity partnerships, and show that the allocation of fund economics to individual partners varies drastically even among the most senior partners and appears divorced from past success as an investor, being instead related to status as a founder. A smaller share of carried interest and ownership—and inequality in fund economics more generally—is associated with departures of senior partners, which, in turn, is negatively related to the funds’ ability to raise additional capital.
Keywords: Partnerships, venture capital, leveraged buyout
JEL Classification: G24, J33, L26
Suggested Citation: Suggested Citation