why clawback

CFA Level II
#1

why clawback?

#2

Why not?

#3

cuz it’s harder to claw forward

#4

why forty-six

#5

why clawback annually waste of admin time and resource

#6

For the last time - Clawback provisions are used to return carried interest to investors (annual true-up) given a fund earns losses. Now, the debate lies in whether a positive return still deems the annual clawback (vs. at termination of fund) the “better” structure.

#7

I hope CFAI is not in this debate.

#8

I did my prep from Stalla. And they did Qs like this end of chapter. We like Clawblack in the corp governance because it forces the GP to work better, focus on performance. More frequent, better it is.

#9

fbc203 Wrote: ------------------------------------------------------- > For the last time - Clawback provisions are used > to return carried interest to investors (annual > true-up) given a fund earns losses. > > Now, the debate lies in whether a positive return > still deems the annual clawback (vs. at > termination of fund) the “better” structure. There is no debate here. Clawback is a protection to the LP when things go bad. No need for protection when things go right. Thus clawback is advantageous to the LP and is definitely the better structure.

#10

Think about it. You invest 100 M GP invest 20M in five projects, one per year. He earns 100% return on Project 1 and gets a fat slice of carried interest. He makes 100% loss on projects 2-5. Your 100M investment is worth 40M. Do you really want to let him keep his bonus?

#11

Actually i agree this subject is debatable. Imagine Blackstone or KKR got into strings of losses these few years amid the financial tsunami because of annual clawbacks. The investors (LP) would have more to worry if these highly-leveraged PEs goes bankrupt. Anyways, I chose ‘clawback annually’ for best corporate governance, cos i think it’s more suitable for a CFA exam answer.