Pay Now or Pay Later?: The Economics within the Private Equity Partnership
51 Pages Posted: 26 Sep 2016 Last revised: 2 Oct 2016
Date Written: September 2016
The economics of partnerships have been of enduring interest to economists, but many issues regarding intergenerational conflicts and their impact on the continuity of these organizations remain unclear. We examine 717 private equity partnerships, and show that (a) the allocation of fund economics to individual partners is divorced from past success as an investor, being instead critically driven by status as a founder, (b) the underprovision of carried interest and ownership—and inequality in fund economics more generally—leads to the departures of senior partners, and (c) the departures of senior partners have negative effects on the ability of funds to raise additional capital.
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