Unique research study reveals private equity managers’ actual “skin in the game”
| Jan 27th, 2011 | Filed under: Academic Research, Private Equity, Today's Post | By: Alpha Male |
|
One of the arguments often advanced in favour of hedge funds and private equity funds is that the managers of these funds have interests that are aligned with investors’ (financial interests, that is, as opposed to an interest in expensive yachts, fine art or fox hunting). Incentive fees are an important way to achieve such alignment of interests. But as regular readers are aware, the inherent asymmetry of incentive fees makes them a band-aid solution at best.
Instead, the gold standard of management alignment is usually a manager’s co-investment in the fund. Still, a co-investment of $300,000 from a start-up manager could represent a large portion of their liquid net worth, while a co-investment of $3 million might be a small portion of a more seasoned veteran’s total liquid net worth. For this reason, many investors will ask a manager to reveal the portion of their net worth in their fund.
More…
To continue reading this article please login (at the right) or click here to learn more about accessing our archives.
Related Posts
- Under the hood: Ground breaking private equity study examines actual investments, not just funds
- Study reveals Achilles heel of mega private equity funds
- Study: Private equity managers’ incentives may be twice as high a previously thought
- Study finds private equity differs markedly across Asia
- New research on private equity surprises even some of the experts
[...] Private equity = liquidity sink? And other [...]