Investment

Private fund financing object

June 13, 2020

In the United States, private funds are often invested by fund managers in a certain proportion, and become general partners with absolute control. The control of private equity fund companies is in the hands of GP, who is responsible for looking for investment opportunities and making investment decisions. Their income is the highest. They need to withdraw 2% of all funds as management fee every year. If the minimum expected capital recovery rate is reached, they also need to withdraw 20% of all profits, which is called carried interest. The success or failure of Private Equity Fund Merger depends on the ability of GP.

After GP’s contribution, the remaining part of the private equity fund is made by investors, who are generally composed of pension funds, financial investment institutions or wealthy individuals, and they are called passive limited partners; the private equity fund composed of LP and GP is a limited partnership. In general, the annual return rate of American funds is between 20-30%, and the life span of the whole fund is generally about 10 years. During this period, the fund makes 15 to 25 independent investments, and the conventional practice is that each investment does not exceed 10% of the total amount of capital.

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