In investing, so many people seem to have “the solution” but they are incapable of profiting from it themselves so they convince you to pay them fees and carried interest to do it with your money.
This is the principal/agent conflict with most funds.
This is the principal/agent conflict with most funds.
A few questions you should always ask:
1) How much of the investment/fund is your own capital?
2) How much above the minimum in your LP Agreement is your capital commitment?
3) Over the past 5, 10 years, what percentage of your comp were fees vs carried interest?
1) How much of the investment/fund is your own capital?
2) How much above the minimum in your LP Agreement is your capital commitment?
3) Over the past 5, 10 years, what percentage of your comp were fees vs carried interest?
Whether you’re an entrepreneur raising money from a GP or a prospective LP investing in a fund (of any kind), the funds/GPs with the most skin in the game will act like a principal and be aligned with you and will seek to make money only when you do.
Everyone else is just renting your money and making you pay them a fee to do it.
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