Recasting Private Equity Funds after the Financial Crisis: The End of ?Two and Twenty? and the Emergence of Co-Investment and Separate Account Arrangements

Recasting Private Equity Funds after the Financial Crisis: The End of ?Two and Twenty? and the Emergence of Co-Investment and Separate Account Arrangements

Joseph McCahery, Erik Vermeulen

Series number :

Serial Number: 
231/2013

Date posted :

November 01 2013

Last revised :

December 06 2013
SSRN Share

Keywords

  • AIFMD • 
  • carried interest • 
  • co-investment rights • 
  • limited partnership agreement • 
  • management fee • 
  • private equity • 
  • separate accounts

This article examines the post-financial crisis trends in the private equity industry. Although most research has followed the pre-crisis trends, we show that investors are
demanding the inclusion of more investor-favorable compensation terms in limited partnership agreements. Our findings suggest that these new terms not only provide the


investors with more favorable management fee and profit distribution arrangements, but
also give them more control over the fund?s investment decisions. Importantly, the new
pattern also reveals the inclusion of more straightforward co-investment rights. Besides
the contractual ?improvements?, we observe that investors want to see more skin in the
game from the managers/general partners.

Authors

Research Member
Tilburg University Faculty of Law and Tilburg Law and Economics Center