MJ Hudson’s Private Equity Fund Terms Research – Part I (Economics)
The sixth edition of MJ Hudson’s Private Equity Fund Terms Research – Part I (Economics) is available to download now. The research conducted by MJ Hudson’s legal team provides both LPs and GPs with an enhanced understanding of the current strengths and weaknesses of the fundamental economic, alignment and governance terms impacting PE and VC funds.
Part I is an examination of the core economic terms that govern a private fund, as well as analysis of the levels and calculation methodologies of management fees. The prevalence and nature of management fee discounts, and the operation of distribution waterfalls and carried interest models (including hurdle rates, ratchets and catch-up) are likewise covered.
2% remains the most commonly seen management fee rate, with 53% of funds in the survey charging a management fee of this level. However, only 15% of funds were charging a management fee in excess of 2%, a decrease on the 21% seen in 2019 and more in line with the 12% seen in 2018.
44% of all capital sought/raised by the funds surveyed had headline management fees of 1.5% or less. This compares with 52% in our 2019 research and 79.5% in our 2018 research.
40% of U.S.-based Managers offered fund-as-a-whole structures, compared with 27% of such Managers in our 2019 research. By contrast, European-based GPs overwhelmingly favoured fund-as-a-whole structures, with 88% of the funds managed by Europe-based GPs surveyed deploying them, the same proportion as that seen in the previous year’s research.
29% of funds surveyed had (at least initially) no hurdle rate at all, an increase on the numbers seen in our 2019 (23%) and 2018 (12%) surveys.
Part II of the sixth edition of the Private Equity Fund Terms Research will be published in 2021.
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