The following are advantages of private-equity partnerships:
I. carried interest gives the general partners potential for high profits.
II. carried interest, because it a call option, gives the general partners incentives to take risks as they are strongly motivated to earn back the limited partners' investment and deliver a profit.
III. There is no separation of ownership and control and general partners can intervene in the fund's portfolio companies any time performance lags or strategy needs change.
IV. There is no free cash flow problem as cash from first round must be distributed to investors.
A) I, II and IV only
B) I and II only
C) I and IV only
D) I, II, III and IV

Question

Quizplus · Accepted Answer

Carried interest provides high profit potential and risk-taking incentives (I, II). General partners can intervene directly in portfolio companies (III). Cash distribution requirements mitigate free cash flow issues (IV).

The Following Are Advantages of Private-Equity Partnerships