Private Equity Carried Interest Clawbacks: Fund Agreement Mechanisms and Tax Considerations

Note: CPE credit is not offered on this program

Recording of a 90-minute premium CLE video webinar with Q&A


Conducted on Tuesday, June 15, 2021

Recorded event now available

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Program Materials

This CLE webinar will discuss clawbacks of carried interest paid to private equity fund managers, focusing on the various clawback mechanisms, structuring fund economic provisions and clawback provisions, and the tax ramifications of clawbacks of carried interest.

Description

Most private equity funds provide for a clawback mechanism requiring the manager to return any carried interest to investors if the manager earned more than the agreed-to percentage of distributions. Carry-clawbacks can present problematic scenarios, including when no-longer employed principals or employees received the carry distributions.

Practitioners representing fund managers must be able to effectively draft fund agreement provisions that anticipate carry-clawbacks on managers. Practitioners representing investors must understand their rights to recoup carried interest distributions to the sponsor.

There are tax consequences when managers or sponsors must return carried interest already distributed. Fund documents must be carefully drafted to address these tax consequences.

Listen as our authoritative panel of investment fund practitioners analyzes scenarios in which carried interest paid to a private equity fund may be subject to clawback. The panel will discuss various clawback mechanisms, fund economic provisions, clawback provisions, and the tax ramifications of clawbacks of carried interest.

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Outline

  1. Fund waterfall options and carried interest economics
  2. Options for preserving the economic deal
  3. Tax implications of carried interest clawbacks
  4. Detailed analysis of clawback features
  5. GP-level implications of carried interest clawback

Benefits

The panel will review these and other key issues:

  • How do variations in distribution waterfalls impact the timing of carried interest distributions to the sponsor? What are the related tax implications?
  • What are the available mechanisms for preserving the partners' economic deal?
  • What are the critical tax and non-tax features of carried interest clawbacks?
  • What are the income tax ramifications of carried interest clawbacks?
  • What are the GP-level considerations arising from carried interest clawbacks?

Faculty

Burke, Siobhan
Siobhan M. Burke

Partner
Paul Hastings

Ms. Burke has a particular focus in corporate, partnership, and limited liability company finance matters, including...  |  Read More

Greenwood, Adam
Adam D. Greenwood

Partner
Ropes & Gray

Mr. Greenwood is a partner practicing in the tax & benefits department. His practice focuses on transactional tax...  |  Read More

Mannon, Joseph
Joseph M. Mannon

Shareholder
Vedder Price

Mr. Mannon is Chair of Vedder Price's Private Fund Formation group and a member of the firm's Investment...  |  Read More

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