Understanding Fund Economics: Management Fees, Carried Interest, and Distribution Waterfalls
The economic framework of private equity funds is characterized by several key components that shape both the fundraising process and the ongoing management of investments. Central to this framework are capital commitments from investors, distribution waterfalls, investment and divestment timelines, and various fund fees. Within this context, financial concepts such as management fees, carried interest, and distribution waterfalls become critical. These elements dictate how fund managers are compensated and how profits are ultimately distributed among investors. Typically, the fundraising period…...