Company news Private Equity Fund Terms Research – Seventh edition: haircut on carried interest for GP ‘for cause’ removal falls from full forfeiture to less than 25%
Thought leadership
03 October 2022

Private Equity Fund Terms Research – Seventh edition: haircut on carried interest for GP ‘for cause’ removal falls from full forfeiture to less than 25%

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MJ Hudson, the end-to-end solutions provider to the asset management industry, has today published its Private Equity Fund Terms Research – Economics, Alignment and Governance for 2022.

Now in its seventh edition, the Research is conducted by MJ Hudson’s Law practice and provides both LPs and GPs with an enhanced understanding of the current strengths and weaknesses of the fundamental economic, alignment and governance terms impacting private equity fund commitments. It includes comparisons with previously published research and discusses the factors driving change. It relates to buyout, venture, and growth funds.

Included is an examination of the core economics terms that govern a private fund. It discusses the key terms that impact upon the alignment of interests between LPs and managers such as GP commitment, carried interest rates, and rights to transfer carried interest to third parties.

Key findings include*:

The data trends show a lower haircut on carry in the case of removal for cause. 

The most common consequence on carried interest of a GP removal for cause for funds coming to market four years ago was full forfeiture. As of last year, the most common consequence was forfeiture of 25% or less of carried interest. This reflects changes in GP/LP negotiating power, as more money pours into the asset class.

The right to sell carry to third parties is more tightly negotiated.

Compared with four years ago, more managers are securing the right to transfer a proportion of carried interest to third parties over the life of a fund, but also fewer funds have come to market with terms that permit such transfers without any sort of limitation.

‘2 and 20’ remains the standard, except for mega-funds with lower management fee percentages.

There is little change in the ‘standard’ 2 and 20 economic formula in the mid-market, but across larger funds we are seeing growth in the number of those paying 1.75% or lower management fees. Mega funds (in excess of 5 billion) typically come to market with a 1.5% management fee, suggesting real pressure on management fees in the market as fund sizes increase.

* Data shows the evolution of a certain fund term over the past four years (2018-2021).

Whitney Lutgen, Partner of MJ Hudson | Law said:

“Our data show a large movement in some of the more detailed terms that speak to alignment, such as carry forfeiture on GP removal, in favour of GPs. Our research also shows that the core economic terms – management fees and carried interest – continue in line with common assumptions around the 2 & 20 formula. These two observations suggest that the market, in this mature phase, still has movement in some terms, but certain core concepts are well-entrenched.”

If you have any questions regarding the report or would like further information on MJ Hudson’s Law Practice and the services offered, please contact one of the team below.


Katherine Hazelden
Senior Adviser, IR and Marketing Solutions
Tel: +44 (0) 7796 547 454

Georgie Whittle
Partner, Camarco
Tel: +44 (0)7835 770 967


MJ Hudson (AIM:MJH) is the end-to-end solutions provider to the asset management industry, specialising in private markets and alternative investments. The firm helps fund managers and investors run more smoothly and perform at their best, through an integrated suite of advisory, outsourcing and analytical services, supported by a range of sophisticated digital tools.

MJ Hudson’s team of more than 350 lawyers, fund accountants, ESG consultants, developers and other professionals, serves more than 1,000 clients, across the globe, including some of the industry’s largest players.

Founded in 2010, by CEO Matthew Hudson (a private markets lawyer and former fund manager), MJ Hudson was admitted to the AIM market of the London Stock Exchange in 2019.


MJ Hudson’s lawyers work with asset managers, institutional investors, management teams and advisers, with a focus on fund formation, M&A, and finance.

Founded in 2010 as a new model of law firm focused on one industry and as an ABS, the MJ Hudson law team began with a focus on alternative assets and has quickly built a reputation as one of the market’s most astute and commercial practices, advising across financial services in two jurisdictions.

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