PE manager

(General partner)

Investors
(Limited partners)

Private equity manager sets up fund
1 Commitment for funds from investors (eg. pension funds) to PE Fund 2 Annual management fees from fund to manager 3 Investment made by fund into ‘Newco’ buying target company (management also invests) 4 May include direct company investment by limited partners

Carried interest

Fee

Capital

Commitment

Interest

8

2

7

1

Co-investment

5
Capital

5 Interest paid on loanstock element of investment either six monthly or annually. may be rolled-up and repaid as capital on exit 6 Capital repaid on exit 7 Fund capital distributed as released from exited investments 8 Carried interest (bonus) paid to general partner when fund achieves hurdle rate of return

4

6

PE fund
(Limited liability partnership)

For a ten-year fund, new investments would typically be made up to years three and four, with follow-on investments in years five to six. The fund would be wound up sometime between six and ten years
Investments Interest Capital

3

5

6

Investee companies
Source: Deloitte FT montage

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