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July 28, 2009 No Comments Author: Andy Jones

Agency Theory for PE Firms

Agency Theory addresses the potential conflict of interest created between parties associated with a private equity firm: external investors, managers, entrepreneurs, and/or the owners of the private equity firm involved. Although managers’s compensation is aligned with the private equity firm in a way that rewards a common, shared interest; conflict between these parties can still arise and affect investor behavior.

There are generally three types of agency relationships:

June 09, 2009 No Comments Author: Andy Jones

Private Equity vs Hedge Funds

While there are no strict definitions of a private equity firm and a hedge fund, some distinct differences separate the two types of firms.

Private equity firms and hedge funds are similar in that both invest from a leveraged pool of capital normally contributed by limited partners; both compensate the management team based on a percentage of profits (typically 20%) as well as charge a fee on assets under management (typically 2%); and both are lightly regulated (as of this writing).

May 26, 2009 No Comments Author: Andy Jones

Private Equity – Carried Interest

Carried interest is the profit earned on private equity investments by a deal-maker in a private equity house. Often known as “carry”, it allows private equity professionals to receive up to 20% of the profit from a company they sell. The “carry” can be a significant portion of a private equity professional’s total compensation.

January 11, 2009 No Comments Author: Andy Jones

Contacting Private Equity Firms

If an M&A professional experiences difficulty getting good response rates from the private equity firms, it’s likely because he or she has yet to establish a solid working relationship with key contacts at these firms. Below is a best practice to contact the private equity firms about potential deal opportunities.