Pay Now or Pay Later?: The Economics within the Private Equity Partnership

51 Pages Posted: 2 Apr 2016 Last revised: 15 Feb 2018

See all articles by Victoria Ivashina

Victoria Ivashina

Harvard University; National Bureau of Economic Research (NBER)

Josh Lerner

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2017

Abstract

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

Ivashina, Victoria and Lerner, Josh, Pay Now or Pay Later?: The Economics within the Private Equity Partnership (March 1, 2017). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2757039 or http://dx.doi.org/10.2139/ssrn.2757039

Victoria Ivashina (Contact Author)

Harvard University ( email )

Harvard Business School
Baker Library 233
Boston, MA 02163
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Josh Lerner

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6065 (Phone)
617-496-7357 (Fax)

HOME PAGE: http://www.people.hbs.edu/jlerner/

Harvard University - Entrepreneurial Management Unit

Cambridge, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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