From Breakingviews - Private equity risks gorging on its secret sauce
There are two major problems. First, it would expose a wider conflict of interest between a buyout shop’s shareholders and its limited partners. Public investors would have less short-term reason to care about whether the underlying funds performed well, since only the volume of assets would drive the bottom line.
Imagine if KKR wanted to squash down the proportion of its distributable operating earnings from performance income to just 10% by 2026, compared with the 16% forecast by brokers. Doing so would require holding back three-quarters of carry and other incentive fees for staff, well above its existing target. To keep the bottom line steady, KKR would then have to slash the employee share of fee-related earnings by 36%, according to Breakingviews calculations, using consensus estimates.
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