1, contribution rate of GP
LP would like to see GP come up with a meaningful contribution ratio to ensure the consistency of interests between LP and GP. Generally, the contribution ratio of GP is usually 1%, which usually depends on the financial situation of GP and the wishes of LP. GP can also choose to contribute in a non-cash way, which mainly includes: giving up part of management expenses or income sharing to offset GP's contribution.
Contribution ratio of general practitioners
Cash contribution ratio: 1% (usually)
Non-cash contribution: giving up part of management expenses or income sharing.
Step 2 share income
GP usually gets a part of the return from the fund. It seems helpful to ensure that the objectives of GP and LP are the same, that is, to maximize the return on investment of funds. The basis of income sharing calculation is the return of the fund. GP must repay all the investment and agreed rate of return of LP (if any, it is generally 6%~ 10% per year). Then you can participate in the rest of the sharing. The share ratio is usually 20%, but some GPs who successfully manage several funds in succession may get a higher share ratio. In recent years, in order to reward GP and make its interests more consistent with LP, 25% or 30% share ratio is increasingly adopted internationally, especially for the part that exceeds the agreed rate of return.
Income share of GP
Repay all the investment of LP and the agreed rate of return is 6%- 10%, and then 20%.
3. Management fee
Generally speaking, the annual management fee is 2% of the fund's committed funds, and it will be reduced to 2% of the committed funds after the commitment period (usually 4-5 years); Or 2% of the promised funds during the investment period, and after the end of the investment period (usually 4-5 years), it will gradually decrease to 1% of the promised funds after the fund liquidation. Management fee is usually used as the cost of GP fund operation and management (including salary, office expenses, project development, transportation, reception, etc. ), and it is not the main salary method of GP. For very large-scale funds, GP will face the pressure of reducing management fees, so as to keep the interests of GP in line with LP's investment return target.
There are also some creative ways to manage fees: reducing the proportion of management fees in exchange for increasing the proportion of income sharing; Gradually reduce the proportion of management fees with the investment of the fund; Charge a lower proportion of management fees to the leading LP. For the first time, some general practitioners will even apply for management fees according to the cost budget.
4, income linked back
Because the distribution of income is based on the withdrawal of investment projects, most partnership agreements will have income-linked clauses or pledge clauses to ensure that the income distribution of GP will not exceed the agreed income sharing standards. The income-linked or pledge clause requires GP to return a part of the income share obtained, so as to prevent the total income of GP from exceeding the agreed proportion in the case of poor performance of subsequent investment projects. Because the closure period of the fund is usually 8- 10 years, GP can't accept waiting for the liquidation of the fund, so there is usually an income revision every year, or an income revision for each project.
5. Fund size
Although most GPs may want to raise as much money as possible, it is very important for them to consider how much money they can invest reasonably and effectively during the investment period of the fund. Because the performance of the fund will determine GP's ability to raise follow-up funds and the possibility of success, GP should not invest too fast or too much in a single project because of pressure. Determining the minimum and maximum scale in the financing document can ensure the flexibility of the financing process. At the same time, it should be remembered that the fund usually does not raise 65,438+000% of the promised funds, because it has to reserve some funds for additional investment in the invested projects and other reasons. Funds usually have a minimum investment requirement for each LP, but GP may want to introduce "special investors" by lowering this minimum investment threshold for strategic or other reasons.
6. Joint investment opportunities
LP usually requires joint investment opportunities when the financing amount of a project exceeds the fund's investment scale limit for a single project. When GP grants LP joint investment right, it can adopt strict rules or flexible methods. Individuals within GP or GP can also get the right of joint investment, but it is not appropriate to allow all projects to be jointly invested, which allows joint investors to participate in the investment of the best projects and pick the best fruits under the guise of joint investment. Usually, when making joint investment, LP will not pay this part of the revenue share and management fee, but sometimes it is not necessary, and they may have to pay the transaction fee.
7. Liability of limited partners
In order to maintain its limited liability, limited partners are usually not allowed to participate in the business of limited partnership funds. Of course, different places have different legal provisions. Some places allow limited partners to participate in the fund's business, but they are cautious about it so as not to affect their limited liability status. Therefore, the participation of most limited partners in fund business is very limited. However, funds usually have advisory committees, which are composed of LP representatives. Their role is to give opinions on certain things (in some cases, approval), such as evaluation, valuation, conflict of interest and remedy for breach of contract, and they will not participate in decision-making matters such as project investment and settlement.
8. Investment restrictions
Some foundations choose to focus only on projects in certain industries or fields. Generally speaking, the investment restrictions are more relaxed than mandatory, so as to avoid GP going through a very complicated process and getting approval from LP when it finds a very good project but it is outside the predetermined investment restrictions. It can be agreed that the advisory Committee has the right to agree to GP's exemption from investment restrictions under appropriate circumstances.
Investment restrictions may include: investment restrictions mainly refer to investment projects or behaviors that the fund cannot or should not engage in according to the nature and scale of the fund. For example, avoid using bank loans to participate in investment, avoid engaging in irrelevant business and generating taxable income, avoid investing in real estate, avoid investing in other funds, limit investment in listed companies, limit reinvestment of investment income (for example, the maximum investment shall not exceed 0.20% of the total investment commitment), require the equity ratio of project investment, limit the proportion of individual project investment in the total fund, limit the project area, and limit the additional investment of subsequent funds in projects invested by previous funds.
9.LP's liability for breach of contract
Most funds have capital contribution request clauses, and a capital contribution request will require LP to provide a small amount of committed capital within a certain period of time after receiving the capital contribution request until the capital contribution is completed. Usually, many LPs will pay attention to what will happen if they promise to contribute, but fail to fulfill it after receiving the request for contribution. This problem can usually be solved by asking LP to provide custody funds, especially those LP who promise to invest less. In some cases, guarantees and other means of credit support may also be needed. Usually, there are some strict terms to punish the LP who breaches the contract, such as confiscating part or all of his rights and interests in the fund, forcing him to transfer his fund rights and interests to other LPs who fulfill his investment obligations at a discount, confiscating part or all of the partnership income and so on.
10 key person clause and inheritance
The ability and experience of GP is usually the most important factor for LP to decide whether to invest in a fund. Therefore, LP usually requires suspension clauses related to management changes or key personnel leaving.
These provisions slightly require GP to prohibit making new investment requests before most or most new managers approved by LP are in place;
What's more, it is required to suspend the fund under most or most LP requirements.
The key person suspension clause is usually based on the fact that other suspension clauses (if any) have been negotiated. The time for raising subsequent funds usually needs to be negotiated, because GP hopes to raise new funds soon after the current fund is invested, while LP hopes to ensure that GP can continue to invest enough time and energy in the current fund.
Generally speaking, before raising a new fund, GP must have invested a certain proportion (more than 75%) of the committed funds of the current fund, and at the same time, it is necessary to stipulate the time standard for GP to use in the current fund after the subsequent fund raising and operation. In addition, the same GP manages two funds, and when investing in the same company and the same field, there are some problems such as conflict of interest and opportunity distribution, and the resolution of these problems may require the approval of the advisory committee.