Code User Group - March 2023
The rearranged March Code user group was held on 12 April and focused on Carried Interest and LTIPs.
For those who could not attend, I thought providing a brief recap and a copy of the slides would be useful. We do not record the sessions to ensure everyone feels comfortable asking questions and sharing their thoughts / prospect insights.
Along with the summary / slides, there are also sections in Knowledge Base on Carried Interest (within the Private Equity Fund Video) and LTIPs (within the Director Remuneration video) to further support your understanding.
Private Equity: Carried Interest
Alongside their basic pay and annual bonus, General Partners within a Private Equity firm receive their main remuneration through carried interest. This is mainly distributed upon the closure of the fund (typically 7 years).
Carried interest is essentially the Private Equity fund’s share of the accumulated profits. Upon the closure of the fund, monies are paid out in the following order
Return of the limited partners (investors) original money
Hurdle rate profits (ie typically an equivalent of 8% returns annually)
Any remaining funds are split 20% (performance fees) to the private equity firm and 80% to the limited partners.
The general partner typically will take around 85% of the performance fees which is their carried interest. The remaining 15% is shared between other staff.
Carried interest is typically whole fund, but can be deal by deal.
LTIPs
Long-term incentive plans are paid to executives and aim to remunerate executives in a way that aligns their interest with that of shareholders and provides an incentive for good performance.
LTIPS can take the form of:
Options
Performance shares
Restricted stock
Stock appreciation rights
LTIPS even once vested, often need to be held for a number of years so will not normally be liquidated for some time (normally 5 years). Some forecasting of their award can be done given the often transparent criteria that executives must meet in order to receive them.
Hope this summary helps and any questions let us know.
Thanks
Jon
To access the slides please navigate to: https://drive.google.com/file/d/1i6q49tMC7FUg5BkXcx12WJ1ukibHX5Hq/view?usp=sharing
