PE manager
Investors
(General partner)
(Limited partners)
Private equity manager sets up fund 1 Commitment for funds from investors (eg. pension funds) to PE Fund 2 Annual management fees from fund to manager 3 Investment made by fund into ‘Newco’ buying target company (management also invests) 4 May include direct company investment by limited partners
Carried interest
Fee
Capital
Commitment
8
2
7
1
Interest
Co-investment
4
5 Capital
6
5 Interest paid on loanstock element of investment either six monthly or annually. may be rolled-up and repaid as capital on exit 6 Capital repaid on exit 7 Fund capital distributed as released from exited investments 8 Carried interest (bonus) paid to general partner when fund achieves hurdle rate of return
PE fund (Limited liability partnership)
For a ten-year fund, new investments would typically be made up to years three and four, with follow-on investments in years five to six. The fund would be wound up sometime between six and ten years Investments
Interest
Capital
3
5
6
Investee companies Source: Deloitte
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