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Oregon Public Employees Retirement Fund: Push and Pull Over GP/LP Compensation
Chaplinsky, Susan; Loutskina, Elena; Walsh, Rob Case F-1628 / Published August 8, 2011 / 18 pages.
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Product Overview

The case is designed to explore the structure and rationale behind the standard compensation arrangements in the private equity (PE) industry. It effectively introduces students to commonly used terms of limited partnership agreements (LPAs), such as fees, carried interest, and preferred terms or hurdle rates. The backdrop for the Oregon Public Employees Retirement Fund (OPERF) case is the changed market conditions following the 2007 financial crisis that spurred a reevaluation of the basic terms of LPAs across the PE industry. This case has been taught in a second-year elective course on entrepreneurial finance and private equity and would be suitable for similarly focused courses on venture capital, private equity, or entrepreneurship. The case can also be used in an investment class designed to explore private equity as an asset class.


Learning Objectives

? Provide an understanding of the basics terms of compensation for PE funds. ? Distinguish the tradeoffs between fees and carried interest. ? Outline the benefits and drawbacks of various fee structures. ? Develop an ability to model the cash flows to LPs and GPs of a PE fund. ? Construct commonly used performance metrics, such as the internal rate of return (IRR) and net present value (NPV) of LP and GP cash flows, to assess fund performance.

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  • Overview

    The case is designed to explore the structure and rationale behind the standard compensation arrangements in the private equity (PE) industry. It effectively introduces students to commonly used terms of limited partnership agreements (LPAs), such as fees, carried interest, and preferred terms or hurdle rates. The backdrop for the Oregon Public Employees Retirement Fund (OPERF) case is the changed market conditions following the 2007 financial crisis that spurred a reevaluation of the basic terms of LPAs across the PE industry. This case has been taught in a second-year elective course on entrepreneurial finance and private equity and would be suitable for similarly focused courses on venture capital, private equity, or entrepreneurship. The case can also be used in an investment class designed to explore private equity as an asset class.

  • Learning Objectives

    Learning Objectives

    ? Provide an understanding of the basics terms of compensation for PE funds. ? Distinguish the tradeoffs between fees and carried interest. ? Outline the benefits and drawbacks of various fee structures. ? Develop an ability to model the cash flows to LPs and GPs of a PE fund. ? Construct commonly used performance metrics, such as the internal rate of return (IRR) and net present value (NPV) of LP and GP cash flows, to assess fund performance.