Research suggests PE firms benefit significantly from the “2” in “2 and 20”
| Jun 27th, 2010 | Filed under: Private Equity, Today's Post | By: AAA Staff |
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Private equity funds face a welter of challenges, from governments changing the tax status of carried interest (see related post “VC Industry to Congress: Don’t Tax Me Bro!”) to banks slicing the amount of leverage for new deals.
At the same time, their limited partners are rancorous. They will accept poor returns on the 2006 and 2007 and 2008 vintage years – that is, if they are able to meet their capital calls. Some won’t, thanks to the denominator effect, where declines in public equity valuations for pension funds and endowments result in a purely arithmetic overallocation to private equity.
Still, some pension funds are allocating. They just wish the general partners’ interests were aligned with their own: to make money through carried interest on profitable exits rather than collecting a fixed income stream based on assets under management.
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