The specific distribution order of fund profits is as follows:
1. The return of the fund is first returned to the limited partner to pay off all its principal contributions (including investment in the project, management fees and other expenses);
2. If the internal rate of return of the fund does not exceed the priority rate of return, the general partner will not get any royalty income. After all the fund principal is returned to the limited partner, the rest will be distributed to all partners according to the proportion of capital contribution. Priority rate of return is the investment rate of return promised by the general partner of the fund to investors when the fund is established. The practice of American fund industry is that the priority income is usually 8% compound annualized rate. It is worth mentioning that, unlike China, the United States is a country with a very low basic interest rate. If the internal rate of return of the fund is higher than the preferential rate of return, investors will get the preferential rate of return based on all their principal.
3. After the investor gets the priority return, the general partner will get 20% commission income from the priority return of his limited partner through the catch-up clause.
4. The remaining fund profits are all distributed between general partners and limited partners according to the proportion of 20% and 80%.
Another basic mode of profit distribution of private equity funds is the project distribution mode, that is, every time the fund withdraws from an investment project, the investment income of the project will be distributed between the general partner and the limited partner.
Tips: The above contents are for reference only.
Response time: 2021-12-14. Please refer to the latest business changes announced by Ping An Bank in official website.