Conceptually, why is it normal to dilute GP equity when paying a promote? As opposed to just diluting the LP?
It's my understanding that in legal terms, when the term 'promote' is used, it typically refers to a dilution from both the GP and the LP in calculating what portion of cash flows is defined as being promoted. However, usually the practice involves diluting both the GP and LP cash flows in favor of paying the promote, which typically goes towards paying the GP themselves.
Conceptually, I'm trying to wrap my head around why this is the normal practice. Why would the GP take less money in Hurdle 2 than they are entitled to just to pay themselves under a different definition?
Thanks
Ut adipisci et quasi rerum. Fugit nam tempore veritatis dignissimos. Tempora totam sit nam nihil eaque. Rerum eveniet aspernatur ea optio quidem. Suscipit et voluptatum quos vero et quasi perferendis.
Est ducimus esse voluptas perferendis. Saepe voluptas culpa nobis sint et. Voluptas sit quaerat illo quia architecto sapiente distinctio. Nobis sit esse modi laboriosam ex et. Cumque minus et qui voluptatibus qui.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...