Private equity is the best business in the world.
Want proof?
How much do you think the founder of a $200m private equity fund makes if they perform?
The answer: $50 million
Let's walk through it...
Management Fee
2% of the fund a year is typical for 10 years.
That is $4m a year for 10 years to pay team salaries, office, deal expenses, etc.
We'll call it a $1.3m/year salary to you.
$13m * 10 is $13 million
Carried Interest
This is where the real money is made.
$600m is the goal (3x-ing your fund)
- $200m return of original capital
- $160m 8% preferred hurdle
= $240m in profit
20% of the carry is $48m
Maybe you share 30% with your team.
You walk away with $34 million.
Bonus Fees
Private equity gets away with charging extra fees too.
- Transaction fees (1-2% of the deal size)
- Monitoring fees (1-5% of EBITDA)
We can round this to an extra $3 million.
Grand Total
+ $13m in management fees
+ $34m in carry
+ $3 in bonus fees
= $50 million
The Catch
Raising money is hard. You need a serious track record. Either with similar deals in the past or by working your way up from small ones.
You have to perform. 3x-ing a fund is an achievement. This is 5-10 years of real effort & skill to get there.