Private asset funds are growing in prominence across Asia and with them comes renewed attention on how value is shared between managers and investors. Behind the headlines of performance and capital flows lies a critical question: fairness.
Fund structures are designed to align the interests of general partners (GPs) and limited partners (LPs), but conflicts emerge quickly when it comes to compensation. Carried interest, management fees, hurdle rates and equalisation provisions all determine who gets paid, when and on what basis.
Take waterfalls. Should carry be calculated on a deal-by-deal basis, allowing managers to take success fees on winning deals while losses remain uncovered? Or should the portfolio be viewed as a whole, with gains offsetting losses before performance rewards are crystallised? The difference is more than technical; it goes to the heart of whether LPs feel their capital is treated fairly.
Equalisation raises similar questions. Early investors often shoulder more risk, committing to a “blind pool” before investments are secured. Later investors may benefit from greater visibility. Without careful structuring, the cost of that timing can be borne unevenly, undermining the perception of fairness across LPs.
In Japan, standard contracts often lack some of the equalisation mechanisms seen in global markets. But international investors increasingly expect these protections as table stakes.
For GPs, the lesson is clear. Beyond strong returns, investor confidence depends on transparency, alignment, and fairness. These issues are not secondary: they are central to fundraising success.
At Langham Hall, we help managers design and operate structures that build lasting trust between investors and managers.
