Acme Investment Trust

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Case Analysis - Acme Investment trust How is the fee structure suggested by Hicks, Muse, Tate, and Furst different from standard private equity fee structure? Standard PE fee structureGenerally Standard fee structure has two components Management fees and Carried interest.In Standard PE fee structure private equity investors receive capital gains as long as the portfolio generates certain returns i.e portfolio value exceeds 100% .Under this structure the cost basis of each investment is first returned to limited partners. The remainder of capital gain on this investment was then divided between limited and general partners on the basis of agreed upon formula. The fee structure suggested by HMFT * According to the fee structure suggested by Hicks, Muse, Tate, and Furst ,the investors are guaranteed at least 20% return. The management fees received by GP will be according to industry standards. * In worst case scenario where all the investment is liquidated with negative or no return the investors will get original invested amount with 20% return provided by sacrificing General Partners own wealth. * This fee structure is risky for General Partners as when the investments sour it will hit them badlyWhat are the financial implications of the offer? For Limited Partners:-From Limited Partners perspective this is an attractive offer as they will receive at least 20% returns as per the agreement in worst case scenario and may earn much higher returns if the funds perform well.For General Partners | For General Partners this offer could turn out to be a poison pill if the investments sour(however there are very rare chances of losses as some of the investments had attractive prospects) On the flip side this offer may attract several investors because of guaranteed returns and the partners may be able to raise substantial

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