Selling Private Equity Fees

94 Pages Posted: 1 Aug 2022 Last revised: 23 Jun 2023

See all articles by Minmo Gahng

Minmo Gahng

Cornell University - SC Johnson College of Business

Blake Jackson

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: July 25, 2022

Abstract

We examine the sale of General Partner (GP) cash flow claims by Private Equity (PE) firms, termed GP stakes, and how these sales relate to agency frictions with fund investors. PE firms with better fundraising and performance records tend to sell GP stakes, mostly to other PE firms. Seller PE firms’ Assets Under Management, income, and scope of fund strategies subsequently increase, while fund performance does not deteriorate. Sellers invest more in their funds, increase employment, and make investor-friendly fund distributions. Our results suggest the reduced “skin-in-the-game" from stake sales does not exacerbate agency frictions between sellers and fund investors.

Keywords: Private Equity, General Partner, Fees, Fund Managers, Agency Conflicts, External Financing, Minority Acquisition

JEL Classification: G24, G30, G34

Suggested Citation

Gahng, Minmo and Jackson, Blake, Selling Private Equity Fees (July 25, 2022). Available at SSRN: https://ssrn.com/abstract=4171363 or http://dx.doi.org/10.2139/ssrn.4171363

Minmo Gahng

Cornell University - SC Johnson College of Business ( email )

Ithaca, NY 14853
United States

HOME PAGE: http://www.minmogahng.com

Blake Jackson (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

HOME PAGE: http://sites.google.com/view/blakejackson/home

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