【正文】 l amount of promised capital is called mitted capital: once the mitted capital is raised, the fund is closed. The typical fund will draw down capital over its first five years (the investment period or mitment period). A successful private equity firm will raise a new fund every few years and number its successive funds. The pensation of the GP is usually divided into: (a) management fee and (b) carried interest (or just carry). Management Fee The typical arrangement is for LPs to pay a given percentage of mitted capital every year, most monly 2%. Sometimes the fee is constant over time, sometimes it drops after the first five years. Lifetime fees are the sum of the annual management fees for the life of the fund. The investment capital is the mitted capital less the lifetime fees. An example might be of help. Consider a fund with mitted capital equal to?100 ml and 2% management fee for all the 10 year life of the fund. The lifetime fees are ?20 ml and the investment capital is ?80 , the fund needs to earn at least a 25% of lifetime return on its investment just to offset the management fee. The industrystandard practice is to pute the management fee on mitted capital, but there is also another method. First, let’s define the difference between realized and unrealized investments: the former are those investments that have been exited (or those in panies that have been shut down), while the latter are those investments that have not yet been exited in panies that still exist. The cost basis of an investment is the value of the original investment. The invested capital is the cost basis for the investment capital that as has been deployed. The invested capital is the invested capital minus the cost basis of realized investments. Sometimes the management fee base changes from mitted to investment capital after the fiveyear investment period is over. Since funds tend to realize investments (., to cash in) in the second part of their life, the invested capital is typically decreasing in this period. Consider this simple example. Suppose a ?100 ml fund has management fee of 2% per year. This fee is paid on mitted capital in the first 5 years and on invested capital in the remaining 5 years. Assume that at yearend 5 the fund is fully invested. Given this structure, management fees will be equal to ?2 ml for each of the first 5 years. At yearend 5 the invested capital would then be ?90 ml. Suppose that the fund realizes 20% of its invested capital in each of the remaining 5 years, . ?18 ml per year. Hence, at yearend 6 the invested capital is ?72 ml and the corresponding management fee is ml. At yearend seven, investment capital and management fee are ?54 ml and ml, respectively, and so on. In other words, the management fee is constant in the first 5 years and decreasing in the following 5 years. Notice that the management fee usually does not cover all operating expenses. Moreover contracts allow reinvestment rights, subject to given requirements (., the original investment has been exited within 1 year). When reinvestment does occur, the sum of investment capital and lifetime fees would be greater than mitted capital. Carried Interest (Carry) The basic idea is simple: if the mitted capital is ?100 ml and total exit proceeds are ?200 ml, the total profit is ?100 ml. A 20% carried interest would produce ?20 ml. The standard carried interest is indeed 20%. There are many variatio