Stub equity
- Thread starter shanlane
- Start date
Hi Shannon,
The "carry" (carried interest) is indeed the performance fee, but the lack of stub equity participation in carry follows logically from the difference between PE fund managers (general partners) and stub equity holders. In general, the fund GPs participate in carry: carry is determinate at their fund (or "vintage" level; I used to work in this area for PE firms, I've actually designed dozens of these, in the good old days!), which invests in the companies. So, post-transaction, the new company will have different classes of shareholder (equity owners); e.g., the PE fund, management, maybe stub equity holders.
The GP fund managers and the stub equity are "parallel" as economic owners in the company (if shares appreciate, they gain; although they will tend to be lower class wrt governance rights, so they will be a minority class or like a class B), but the carried interest is a function of the GP fund ... so it's sort of like if you pooled money to invest in Acme Corp (and other companies) and I invest along with you in Acme, but on my own NOT in your fund (which would represent an indirect investment in Acme) so we are both equity holders (economically equal, but not necessarily equal wrt governance rights), but I don't get a piece of the profits on your investment fund, that's "your business" and the carry is a function of a self-contained unit (vintage). Thanks,
The "carry" (carried interest) is indeed the performance fee, but the lack of stub equity participation in carry follows logically from the difference between PE fund managers (general partners) and stub equity holders. In general, the fund GPs participate in carry: carry is determinate at their fund (or "vintage" level; I used to work in this area for PE firms, I've actually designed dozens of these, in the good old days!), which invests in the companies. So, post-transaction, the new company will have different classes of shareholder (equity owners); e.g., the PE fund, management, maybe stub equity holders.
The GP fund managers and the stub equity are "parallel" as economic owners in the company (if shares appreciate, they gain; although they will tend to be lower class wrt governance rights, so they will be a minority class or like a class B), but the carried interest is a function of the GP fund ... so it's sort of like if you pooled money to invest in Acme Corp (and other companies) and I invest along with you in Acme, but on my own NOT in your fund (which would represent an indirect investment in Acme) so we are both equity holders (economically equal, but not necessarily equal wrt governance rights), but I don't get a piece of the profits on your investment fund, that's "your business" and the carry is a function of a self-contained unit (vintage). Thanks,
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