• Sharebar

Trying to determine which Fund terms are optimal for the GP:

Option I: 8% preferential return to LPs with 80/20 GP catch-up, 50/50 split thereafter

Option II: 9% preferential return to LPs with 100/0 GP catch-up, 50/50 split thereafter

What do y'all think?

Thank you!

The WSO Advantage - Private Equity

PE Interview Prep Pack

9 LBO Tests, Get an Edge, 200pgs+ Learn More.

Resume Help from Actual PE Pros

Land More PE Interviews. Learn More.

Comments (4)

  • BTbanker's picture

    I'm going to guess option I is better, but doesn't it depend on the size of the deals?

  • cheese86's picture

    Is this a homework assignment? Think about it man...it depends where your returns end up. If you are looking at 9% return per year for the fund then option 1 is clearly better but draw a diagram of the returns and it should be pretty straightforward.

  • HFFBALLfan123's picture

    Scenario 1 is better, more profits to split. The 80/20 vs. 100% catch-up really has no bearing if you have decent returns you will get to the 50/50 regardless. Also depends greatly on if that pref. accrues and rolls into your equity balance at YE, if this is the case, Scenario 1 is even more appealing.

  • In reply to HFFBALLfan123
    cheese86's picture

    To unlock this content for free, please login / register below.

    Connecting helps us build a vibrant community. We'll never share your info without your permission. Sign up with email or if you are already a member, login here Bonus: Also get 6 free financial modeling lessons for free ($200+ value) when you register!