A private equity fund invests $100 million in a venture company that is sold for $130 million. It also invests $100 million in an LBO that goes poorly and is liquidated for $80 million. 1. If the carried interest incentive fee for the GP is 20% and there is no clawback provision, what is the investor's return after incentive fees, assuming the investment outcomes are realized in the same year: a under an American-style (deal-by-deal) waterfall structure? b. under a European-style (whole-of-fund) waterfall structure?
A private equity fund invests $100 million in a venture company that is sold for $130 million. It also invests $100 million in an LBO that goes poorly and is liquidated for $80 million. 1. If the carried interest incentive fee for the GP is 20% and there is no clawback provision, what is the investor's return after incentive fees, assuming the investment outcomes are realized in the same year: a under an American-style (deal-by-deal) waterfall structure? b. under a European-style (whole-of-fund) waterfall structure?
Chapter11: Venture Capital Valuation Methods
Section: Chapter Questions
Problem 5EP
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Explain clearly.
![EXAMPLE: Waterfall structure and clawback provision
A private equity fund invests $100 million in a venture company that is sold for $130 million.
It also invests $100 million in an LBO that goes poorly and is liquidated for $80 million.
1. If the carried interest incentive fee for the GP is 20% and there is no clawback provision, what is
the investor's return after incentive fees, assuming the investment outcomes are realized in the
same year:
a under an American-style (deal-by-deal) waterfall structure?
b. under a European-style (whole-of-fund) waterfall structure?
2. How would the answers be affected if the venture investment was sold in year 1 and the LBO
investment was sold in year 2?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2d57aed7-3b05-4302-bb5a-f6aef66a00d0%2Ffc7bda64-c005-406f-8cec-660826214222%2Fhdjik7_processed.jpeg&w=3840&q=75)
Transcribed Image Text:EXAMPLE: Waterfall structure and clawback provision
A private equity fund invests $100 million in a venture company that is sold for $130 million.
It also invests $100 million in an LBO that goes poorly and is liquidated for $80 million.
1. If the carried interest incentive fee for the GP is 20% and there is no clawback provision, what is
the investor's return after incentive fees, assuming the investment outcomes are realized in the
same year:
a under an American-style (deal-by-deal) waterfall structure?
b. under a European-style (whole-of-fund) waterfall structure?
2. How would the answers be affected if the venture investment was sold in year 1 and the LBO
investment was sold in year 2?
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