Lea H. Stern
Department of Finance Ohio State University
NBER Working Papers and Publications
|September 2010||Pay for Performance from Future Fund Flows: The Case of Private Equity|
with Ji-Woong Chung, Berk A. Sensoy, Michael S. Weisbach: w16369
Lifetime incomes of private equity general partners are affected by their current funds' performance through both carried interest profit sharing provisions, and also by the effect of the current fund's performance on general partners' abilities to raise capital for future funds. We present a learning-based framework for estimating the market-based pay for performance arising from future fundraising. For the typical first-time private equity fund, we estimate that implicit pay for performance from expected future fundraising is approximately the same order of magnitude as the explicit pay for performance general partners receive from carried interest in their current fund, implying that the performance-sensitive component of general partner revenue is about twice as large as commonly discu...
Published: Ji-Woong Chung & Berk A. Sensoy & LÃ©a Stern & Michael S. Weisbach, 2012. "Pay for Performance from Future Fund Flows: The Case of Private Equity," Review of Financial Studies, Society for Financial Studies, vol. 25(11), pages 3259-3304. citation courtesy of