The most common mode is "2%+20%", that is, LP pays 2% management fee to GP every year during the investment period of a fund; After the expiration of the duration, GP can also share 20% of the profits after the principal is returned to LP after the fund returns to the pre-agreed bottom line.
This 20% is a carry.
The profit distribution mode of private investment funds belongs to the main economic terms of funds and is one of the most concerned issues for investors in fund raising.
The distribution order of profits of private investment funds is commonly known as distribution waterfall in English, which represents the order of fund interests. People in the non-fund industry are often confused when they hear this term.
The profit distribution model of private investment funds varies according to the different fund models.
Traditional buy-out funds, hedge funds, debt funds and other funds obtain profits in different ways, which leads to different ways and orders of profit distribution.
Traditional M&A funds have two basic profit distribution modes: full capital priority mode and transaction-by-transaction mode.