Pay now or pay later? The economics within the private equity partnership

The economics of partnerships have been of enduring interest to economists, yet it is not clear what profit sharing within a private partnership should look like. We examine over 700 private equity partnerships and show that the allocation of fund economics to individual partners varies drastically, even among the most senior partners, and appears divorced from past success as an investor, being instead related to status as a founder. A smaller share of carried interest and ownership and inequality in fund economics more generally is associated with departures of senior partners which, in turn is negatively related to the funds' ability to raise additional capital. (C) 2018 Elsevier B.V. All rights reserved.