clawback

CFA Level I Alternative Investments
#1

Hi everyone,

In Schewser, the below from Private equity structure and Fees

" It is possible that incentive fees paid over time may exceed 20% of the profits relized when all portfiolio companies have liqudated. This situation arises when returns on portfolio companies are high early and decline later. A clawback provision requires manager to return peridoic incentive fees to investors that would result investors receiving lee than 80% of the profits generated by portfolio investments as a whole. "

I read it several time but I couldn’t understand what is the idea >< !!! specially when it talks about clawback.

Can someone please help me.

1 Like
#2

The idea is that if early returns are high and later returns are low, it’s possible that the incentive fees will exceed 20% of the profits.

However, a clawback provision can prevent incentive fees exceeding 20% of profits: a clawback provision requires the manager to return any incentive fees that exceed 20% of profits.

1 Like
#3

got it. Thank you.

#4

You’re welcome.