At the end of the day, on a typical opportunistic fund returning 16%IRRs to the LP, how much of the cash flows does the GP generally earn on the promote?
Obviously there is the asset management fee, and could be other fees, but I just want to know what is a typical breakdown of how much the GP takes home vs. how much the LP takes home from the waterfall.
Depends on what the deal is expected to make and if the GP knocks it out of the park.
One way to look at this is to look at total deal level profit vs LP profit. The rest is GP profit due to promote.
If you were going to follow true investor guidelines, you probably shouldn't care what your GP is going to make as long as you hit your return metrics.
What other true investor guidelines are out there as they relate to LP/GP interests? Serious question.
I guess guidelines is the wrong way to put it.
It is more of like a fallacy a lot of investors fall into.
If someone brings you a deal with great returns that you don't have access to, but you don't do the deal because you are mad they are making more than you.
I would say that is always a poor investment decision, and a kind of strange metric to look at or judge a deal off of.
I hear you on this. But what if you are looking at a ground-up new development that obviously carries some serious risk, and you think maybe you as an LP might only earn 15%, because the GP wants a structure that gives them 40% of the profits... so if it were more like a 75/25 split of profits, you'd have hit your 19% target.
It all depends. Based on preferred return and the equity split upfront. If GP is only putting in 5%-10%, then 40% of promote might be tough to justify. However, if your putting up more, then the LP is more willing to compensate accordingly.
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