Increased private equity interest in performance fees over return levels

Author: Jimmie Franklin | Published: 12 Mar 2020

Private equity engagement with the evolving secondary market is moving faster than fund documentation. Secondary market innovation has led to investors being more keen on the higher performance fees that are paid when a positive return is made.

Since the increased interest seen in the secondary market, private equity firms are managing funds in a way that ensures more consistent value-optimised liquidity is being provided within the duration set by the fund documentation.

"Investors are becoming more receptive to higher performance fees over certain return levels, particularly when this is offset by lower management fees," said Rede Partners, head of transactions Magnus Goodlad. He added that tiered carried interest has seen growth over certain levels of return become increasingly common. Tiered carried interest is the profit share of an investment paid to the investment manager in excess of the amount that the manager contributes to the partnership.