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, bond 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 models, namely AllCapitalFirst model and transaction-by-transaction model.
Extended data:
According to the data of China Asset Management Association, as of the end of May 20 18, the scale of private equity and venture capital funds reached 7.89 trillion yuan this year, an increase of13 billion yuan over the previous month, and private equity venture capital maintained a steady growth trend, accounting for about 63% of the total private equity scale.
In May, the total scale of private placement reached 12.57 trillion yuan. Among the 23,703 registered private equity fund managers, 20,767 have management scale, with an average management fund size of 605 million yuan. Among them, there are 1972 private equity institutions with capital exceeding 654.38 billion yuan, and there are 225 private equity institutions with capital exceeding 654.38 billion yuan. Since the beginning of this year, the number of 10 billion private equity institutions has reached a new high, with an increase of 38.
In recent years, the scale of funds managed by VC (venture capital) and PE (private equity investment) is also increasing, and the fund management fee income of large funds is considerable. Take the fund under management of 654.38 billion yuan as an example, and the annual management fee is about 20 million yuan. Even so, most funds still think that carriedinterest is the main income of the fund.
References:
Baidu encyclopedia-private equity fund