Private equity managers’ compensation is a particularly problematic area in terms of its tax treatment in the United States and some European countries. This problem originates from the difficulty of defining the particular forms of incentive and therefore their estimated fair value. Based on the literature, carried interest, which is one of the most common profit-sharing arrangements observed in practice, may be considered as an option characterized by several constraints. The use of classical option-pricing models is inappropriate for taking all these constraints into account. The contribution of this paper is to propose a suitable model to estimate the expected compensation of fund managers and to test the effect of fund characteristics and profit-sharing rules on its fair value. We use the Monte Carlo simulation model and take into account the non-marketability criteria of the carried interest. A sensitivity analysis is performed in order to show the evolution of the carried interest value. The results importantly show the sharp differences between carried interest distributed in the case of venture capital and that in the case of buyout funds and show the importance of the claw-back clause for “deal by deal funds”.
Review of Quantitative Finance and Accounting – Springer Journals
Published: Jan 9, 2016
It’s your single place to instantly
discover and read the research
that matters to you.
Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.
All for just $49/month
Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly
Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.
Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.
Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.
All the latest content is available, no embargo periods.
“Hi guys, I cannot tell you how much I love this resource. Incredible. I really believe you've hit the nail on the head with this site in regards to solving the research-purchase issue.”Daniel C.
“Whoa! It’s like Spotify but for academic articles.”@Phil_Robichaud
“I must say, @deepdyve is a fabulous solution to the independent researcher's problem of #access to #information.”@deepthiw
“My last article couldn't be possible without the platform @deepdyve that makes journal papers cheaper.”@JoseServera