Paying for performance in private equity: Evidence from venture capital partnerships


We offer the first empirical analysis connecting the timing of general partner (GP) compensation to private equity fund performance. Using detailed information on limited partnership agreements between private equity limited and general partners, we find that “GP-friendly” contracts—agreements that pay general partners on a deal-by-deal basis instead of withholding carried interest until a benchmark return has been earned—are associated with higher returns, both gross and net of fees. This is robust to measures of performance persistence, time period effects, and other contract terms and is related to exit-timing incentives. Timing practices balance GP incentives against limited partner downside protection.

Participating Institutions

TRR 266‘s main locations are Paderborn University (Coordinating University), HU Berlin, and University of Mannheim. All three locations have been centers for accounting and tax research for many years. They are joined by researchers from LMU Munich, Frankfurt School of Finance and Management, WHU – Otto Beisheim School of Management, ESMT Berlin, Goethe University Frankfurt and Carl von Ossietzky University Oldenburg who share the same research agenda.