A private equity fund has a limited and predetermined term, usually ten years. The funds make investments in selected unquoted portfolio companies or properties mainly during the fund’s first three to four years. A dedicated team is responsible for the investment activities in each of CapMan’s investment areas.
CapMan has an active role in the development of investment targets. The aim is to create prerequisites for significant increase in the value of the portfolio companies and properties. The ownership period is on average four to six years, after which CapMan exits from the target for example through a sale to an industrial or financial buyer or an initial public offering. Following an exit, the invested capital and yield are returned to the private equity fund to be distributed to the fund’s limited partners (the investors and management company) according to the agreed profit distribution policy. The funds’ limited partnership structure enables investors to receive interest, dividends and capital gains throughout the financial year as the fund exits from it portfolio companies and properties.
The fund’s management company or General Partner receives an annual management fee for the fund’s entire period of operations that is based on the amount of capital under management or portfolio at cost. In addition, the management company receives carried interest after the limited partners have regained their investment in addition to a preferential annual return, usually 7 to 8%. CapMan’s share of carried interest is typically 20–25% for funds established prior to 2004 and 10–15% for funds established in 2004 and thereafter. More information on CapMan’s share of the funds’ carried interest is presented in the IR section of this site.
Private equity houses assure the continuity of business by establishing new funds as the previous funds become fully invested.
Life cycle of a private equity fund
