Paying for performance in private equity: Evidence from venture capital partnerships

Published

Journal Article

© 2019 INFORMS. We offer the first empirical analysis connecting the timing of general partner (GP) compensation to private equity fund performance. Using detailed information on limited partnership agreements between private equity limited and general partners, we find that "GP-friendly" contracts-agreements that pay general partners on a deal-by-deal basis instead of withholding carried interest until a benchmark return has been earned- are associated with higher returns, both gross and net of fees. This is robust to measures of performance persistence, time period effects, and other contract terms and is related to exittiming incentives. Timing practices balance GP incentives against limited partner downside protection.

Full Text

Duke Authors

Cited Authors

  • Höther, N; Robinson, DT; Sievers, S; Hartmann-Wendelse, T

Published Date

  • January 1, 2020

Published In

Volume / Issue

  • 66 / 4

Start / End Page

  • 1756 - 1782

Electronic International Standard Serial Number (EISSN)

  • 1526-5501

International Standard Serial Number (ISSN)

  • 0025-1909

Digital Object Identifier (DOI)

  • 10.1287/mnsc.2018.3274

Citation Source

  • Scopus