(1) Principal priority return mode: Under the principal priority return mode, the Fund does not distribute profits to individual projects, but uniformly calculates the profits of all projects. The specific distribution order of fund profits is as follows: 1. The return of the fund is first returned to LP 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, GP will not get any royalty income. After all the principal of LP is returned, the remaining fund profits will be distributed to all partners in proportion to the capital contribution. Priority rate of return is the investment rate of return promised by fund GP to investors when the fund was 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 IRR 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 investors get the priority return, GP will get 20% commission income of LP's priority return through the GPCatch-Up clause. 4. The remaining fund profits are all distributed between GP and LP according to the proportion of 20% and 80%. (2) Project allocation model: American investment funds mostly adopt the project allocation model, so this model is also commonly known as L (relative to the principal priority return model). However, with the deterioration of the market environment in recent years, this income distribution model has been greatly challenged. According to the principle of private equity investment issued by the American Institute of Institutional Investors, the best profit distribution model of the fund is the principal priority return model. This principle provides a strong foundation for institutional investors to negotiate with GP. In addition, due to the market environment, it is increasingly difficult to raise funds. In the face of institutional investors, the negotiation ability of fund managers is not as good as before, and many economic terms must listen to LP's opinions, including the fund income distribution model. There are different ways to assign items. Strict project allocation mode is that GP accounts for the profit and loss of each project separately. Once LP recovers the investment and priority return of a project, GP can collect royalty income. Assuming that the fund invests in five projects at the same time, GP can collect commission income when one project is profitable, regardless of whether other projects are losing money. In this mode, GP will lose the motivation to dispose of loss-making projects. Another common distribution model by project is to calculate all realized gains and losses of the fund. In this mode, the fund's income is first used to repay LP's investment and priority return in all projects that have been withdrawn. If a project loses money, the next profitable project needs to fill the loss first, and then calculate the possible priority return and GP royalty income. Compared with the principal priority return model, the project allocation model has obvious advantages for GP, and GP will get royalty income earlier. However, according to the profit and loss of each investment project of the fund, this method may make GP get more commission income than the agreed commission income ratio. Therefore, it is necessary to calculate the overall profits of all projects of the fund when the fund is dissolved, so as to judge whether the commission income actually collected by GP exceeds its due commission income. For investors, the risk of the project allocation model is that GP may be unwilling or unable to return this extra royalty income to the fund for various reasons. Investors can use the GP callback mechanism (GPClawback) in the fund's legal documents to let GP return this extra royalty income to the fund. The callback mechanism is complex, and it is usually used together with the pre-existing account and the personal guarantee of the fund manager. To sum up, there are two main income distribution modes of private equity funds. Different income distribution modes will have different operation modes. Investors can choose their own income distribution mode according to their actual situation, but no matter which income distribution mode they choose, the ownership of the products they invest in will not change.