A collective investment structure used to make an investment in a number of equities and debt is known as private equity funds to some extent. Generally, these types of funds are limited partnerships for a 10 year term. At the commencement, institutional investors undertake to make an unfunded pledge to the partnership of a limited company, which is then careworn over the entire term of the private equity fund. Learn more about Touchstone Impact Bond Fund.
Even a private equity fund, like mutual funds in India, is also raised and managed by a bunch of investment professionals employed by a private equity fund management firm. Ideally a single firm manages a series of different private equity funds and will also try to raise new equity funds every 3 to 5 years as part of their work.
Most of these funds are structured as LPs (Limited Partnerships), and are therefore governed by the terms of the LPA or Limited Partnership Agreement. These types of funds have a GP or a general partner in charge of raising capital from well-off institutional investors, such as high net worth individuals, endowments, foundations, insurance companies , universities and pension schemes. As LPs or Limited partners these individual investors invest in the fund. The terms put forward relating to the management of such funds are myriad. Here a few of them are discussed in broad terms in this article.
Partnership duration-the partnership term is ideally a fixed-life investment that typically covers 10 years with a limited number of extensions being provided.
Management fee-Investors make an annual payment, as part of the professional fees for the fund manager, of 1 to 2 percent of the total committed capital towards the fun.
Preferred return or hurdle rate-this is the targeted minimum return rate that must be achieved before the managers can receive their payment under the Carried interest heading.
Hand / title change-private equity funds are not expected to be traded or transferred, but are free to transfer to other investors.