The following are advantages of private-equity partnerships:
A)Carried interest gives the general partners potential for high profits; carried interest, because it is a call option, gives the general partners incentives to take risks; and there is no free cash flow problem as cash from the first round must be distributed to investors and not reinvested.
B)Carried interest gives the general partners potential for high profits; and carried interest, because it is a call option, gives the general partners incentives to take risks.
C)Carried interest gives the general partners potential for high profits, and there is no free cash flow problem as cash from the first round must be distributed to investors and not reinvested.
D)Carried interest gives the general partners potential for high profits; carried interest, because it is a call option, gives the general partners incentives to take risks; there is no separation of ownership and control as general partners can intervene in the fund's portfolio companies any time performance lags or strategy needs change; and there is no free cash flow problem as cash from the first round must be distributed to investors and not reinvested.

Question

Quizplus · Accepted Answer

Private-equity partnerships benefit from carried interest, which incentivizes risk-taking and offers high profit potential. They also avoid free cash flow problems by distributing cash to investors rather than reinvesting it, and they allow general partners to actively manage portfolio companies, addressing performance or strategic issues directly.

The Following Are Advantages of Private-Equity Partnerships