Buzz Archive:
2007 Fund Formation Terms and Trends - Part 2 of 2

by VC Experts.com, Inc., 10/25/2007

Now introducing the release of our 2007 Fund Formation Survey! In recognition of the increased complexity in private equity contracts, VC Experts has undertaken a survey regarding the best practice and standard operating procedures in five key areas for both buyout and venture funds:

• Fund Formation and Operation
• Fees and Expenses
• Distribution and Profit Sharing
• Performance Returns
• Corporate Governance of Funds and Portfolio Companies

Today, our readers get a free excerpt from the Fees and Expenses section of the 2007 Fund Formation Survey. In particular, management fees are necessary to pay for the ongoing operating expenses of the partnership. Certainly, all investors feel that the management fees should be reasonable to assure the ongoing operation of the partnership.

There has been some criticism of management fees, especially in light of the larger (primarily buyout) funds raised because excessive fees can potentially represent a misalignment of interests. The argument is that an annuity stream of undue management fees can reduce the financial motivation of general partners to achieve high risk-adjusted returns.