10.2.4.a: Note on GP Profit and Sharing:Front End Loaded or Back End Loaded. Deal-by-Deal

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Abstract

In the foregoing Section, the allocation and distributions sections of the limited partnership agreement for a private equity fund entail a regime which allocates/distributes profits to the general partner as portfolio investments are harvested one by one, as opposed to the legacy system in the private equity fund business, which is built on the notion of accumulation, meaning that the general partner's carried interest does not kick in until and unless cumulative partnership profits exceed cumulative losses. The virtue of the legacy system is obvious. More often than not, the partnership accumulates losses in the early years; then, once it starts harvesting investments it (hopefully) goes into a profit position. ...