The whole private equity business model is based on profit sharing. Therefore compensation is quite different from what you would encounter in a typical corporate of an investment banking.

PE firms get paid in mainly two ways Mnagement fees & carried interest.

Management fees is paid regularly. This is calculated as percentage of AUM ( Assets Under Management). Why do they have to pay this, given that they already gave the fund money to invest? This is because the PE funds have a lot of ongoing expenses that they need to cover: salaries, deal fees that  pay to investment banks, consultants , travel.

Carried Interest: this is the percentage of the profits that the fund is making on the investments. For eg the limited partners may ask that the fund only gets paid if the return is over 8% p.a.

In addition the profit is calculated for the performance as a whole for the whole amount invested( that may be 10 to 15 deals) not on a deal to deal basis.

Others some PE firms charge deal fees. That means that each time they buy a company, they may charge some extra money to the investors.This is in theory to cover the extra expenses incurred during a deal.

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