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
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