But the recalled capital comes from the net distributions only. Regardless of whether capital is actually distributed and then recalled soon, or never distributed, there is the situation that the GP asks for his carry. On sale of first deal, both GP and LPs have profits that they could take. I believe the issue to be an issue of timing and of whose money can be recalled. Also, a subsequent loss should result in a clawback. once and for all at the end? I believe the total amount should be the same at the end (ignoring time value of money). If the manager can flip a deal after a deal, what is wrong with calculating the carry on each deal vs. I believe this is not an issue of the amount of GP carry. The exact sequence of distribution under the waterfall and how does the clawback provision work in case of a succession of deals done using the same capital drawn down is again, entirely a function of the way the key terms are defined for this specific fund and cannot be generalized. I assume the fund in questions uses U.S style waterfall (as opposed to European)distribution as it appears to give out carried interest on a deal by deal basis with clawback provision. what exactly is stated in the reinvestment provision clause under P.E fund formation document. Exactly how this may turn out in practice is entirely contingent upon the way the fund is structured and certain crucial terms are defined, e.g. This is the nutshell of the contention described here. Hence the contention of under what circumstance are GPs allowed to do this. On the other hand, many LPs don't like this as this can potentially dilute their returns/turn their profits into losses if subsequent investment dont work out. I wonder what is the record of the number of times a PE fund can profitably recycle the same capital. this sounds like a pretty sweet way to get really rich very quick if you can pull it off. So the more often they can "recycle" the same capital to make money from multiple deals over and over again, the more carried interests they get from the same source of capital. GPs have incentives to do this because every time they exit an investment at profits they get to charge performance fee/carried interests off the deal. It becomes trickier if the profit has already been distributed back to the LP, presumably in accordance with fund terms and then the GP wants to "recall" it back to invest in other deals. This is easy to do if the GP puts the same money into another deal right away while it is still in the fund.
Reinvestment means that after the PE fund has exited certain positions (with profits presumably) it can then re-invest the proceeds in other deals before the end of fund life cycle. This allows the general partner to take a carried interest. (1) One possibility is for reinvestment proceeds to be treated as a distribution and a recall, which does not increase unfunded commitments. "Whether reinvestments should increase unfunded commitments presents a difficult issue. Could you explain, if possible in 'baby-language', the above two article extracts? This would be much appreciated. Now, I generally understand how a waterfall distribution provision works but, not quite sure how the GP can get carry in recycling/reinvestment situations where, for example, the GP deems the reinvested amount distributed, but which the LPs don't actually receive.
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As a result, the profit portions that do not constitute a return of capital or preferred return may be distributed in part as carried interest, which would result in the GP receiving profits on a previously disposed asset even though the investors did not actually receive their return of capital plus preferred return. Reinvested amounts may be deemed distributed and recalled per the reinvestment provision and can be deemed run through the waterfall. The general partner may nonetheless want to receive carried interest on such amounts. "Sometimes fund sponsors provide that reinvested proceeds will be withheld from distributable funds. There is then the following extract from another article:
This saves the general partner from having to distribute and recall reinvestment proceeds". In such event, the general partner is often able to take carried interest by deeming the reinvested amount distributed. (2) Another possibility is to treat the reinvestment as an additional capital call, without an offsetting distribution, particularly if the reinvestment occurs a short period of time after the initial investment (such as less than six months thereafter).
(1) Once possibility is for reinvestment proceeds to be treated as a distribution and a recall, which does not increase unfunded commitments.
Please could you explain to me each of the numbered sentences: Ok, here's my question (it's from an article on fund terms).
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