Deciphering Private Equity Fund Structure: An In-Depth Guide (2024)

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Deciphering Private Equity Fund Structure: An In-Depth Guide (2024)

FAQs

What is the structure of a private equity fund? ›

Fund Structure: Private equity funds are typically structured as limited partnerships. The GP acts as the general partner of the limited partnership, while the investors become limited partners. This structure provides tax advantages and limits the liability of the LPs.

What is the basic structure of a private equity firm? ›

Private equity fund structure

The fund is managed by a private equity firm that serves as the 'General Partner' of the fund. By contributing capital, investors become 'Limited Partners' of the fund. As such, the fund is structured as a 'Limited Partnership'.

What is the legal structure of a private equity fund? ›

Private equity funds are their own separate legal entity, usually for both liability and tax reasons, and are often founded as a Limited Liability Company (LLC) or a Limited Partnership (LP). The reason for this is both LLCs and Limited Partnerships are "pass-through businesses" and not subject to corporate taxes.

How do you Analyse private equity funds? ›

Performance in private equity investing can be measured using the internal rate of return (IRR), the multiple of money (MoM), and the public market equivalent (PME).

What is the 2 20 structure in private equity? ›

This is also known as the “2 and 20” fee structure and it's a common fee arrangement in private equity funds. It means that the GP's management fee is 2% of the investment and the incentive fee is 20% of the profits. Both components of the GPs fees are clearly detailed in the partnership's investment agreement.

What are the three types of private equity funds? ›

3 Types of Private Equity Strategies. There are three key types of private equity strategies: venture capital, growth equity, and buyouts.

What are the basics of private equity funds? ›

Private equity funds will typically raise capital and then deploy that capital into a range of different companies over a period of time; for example, two years. This aims to create a diverse portfolio by spreading sources of risk and return across different underlying companies and also adds temporal diversification.

What are the four typical private equity comprises? ›

The private equity asset class is sub divided into buyouts, growth, venture and mezzanine. The majority of private equity funds will tend to specialise in one of the four, as they have their own specific characteristics.

What is the life cycle of a PE fund? ›

The life cycle of a typical private equity fund is usually ten years, but that ten years generally doesn't start until the team raises substantial capital and it doesn't end until all assets are sold. So, the life cycle of a private equity fund may stretch to as long as 15 years.

What is a good MOIC for private equity? ›

A MOIC of 3x and above, which indicates that the investment has tripled the initial capital or better, is considered excellent, mainly if it's realized over a short to moderate timeframe. On average, most private equity firms target a MOIC of between 2.5x and 3.5x.

What is a good IRR for a private equity fund? ›

The hurdle rate is the lowest IRR that an investment must obtain to justify the risks involved. Given the illiquidity of their investments and risks, PE investors frequently set a specific threshold for projected returns — typically 20% or higher.

What is the NAV of a private equity fund? ›

In private equity funds, NAV represents the value of an investor's shares in the fund at any particular time. Assets that have already been distributed to investors would not be included in the NAV.

What is a private equity fund model? ›

Private equity funds are closed-end investment vehicles, which means that there is a limited window to raise funds and once this window has expired no further funds can be raised. These funds are generally formed as either a Limited Partnership (“LP”) or Limited Liability Company (“LLC”).

How are private equity deals structured? ›

How is a private equity deal structured? Private equity deals are structured to ensure that the General Partner (GP) has paid a price which enables them to generate the required returns through a combination of financial, operational, and strategic decisions.

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