NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Pay Now or Pay Later?: The Economics within the Private Equity Partnership

Victoria Ivashina, Josh Lerner

NBER Working Paper No. 22660
Issued in September 2016
NBER Program(s):Corporate Finance

The economics of partnerships have been of enduring interest to economists, but many issues regarding intergenerational conflicts and their impact on the continuity of these organizations remain unclear. We examine 717 private equity partnerships, and show that (a) the allocation of fund economics to individual partners is divorced from past success as an investor, being instead critically driven by status as a founder, (b) the underprovision of carried interest and ownership—and inequality in fund economics more generally—leads to the departures of senior partners, and (c) the departures of senior partners have negative effects on the ability of funds to raise additional capital.

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Document Object Identifier (DOI): 10.3386/w22660

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