Author: Gert-Tom Draisma / www.TristanFinance.com

First published: 24th of September 2026

Latest update: 28th of September 2026

1. There is no single legal structure called a “private equity fund”

Throughout the introductory chapters of this book, we have frequently referred to the Fund, the General Partner and the Limited Partners.

That terminology is useful because the limited partnership is one of the most familiar structures used for private equity funds.

But it can also create a misleading impression.

A private equity fund does not have to be a Limited Partnership.

Depending upon the jurisdiction, investor base, investment strategy, tax considerations and regulatory environment, a private equity arrangement may legally be:

• a partnership;
• a limited partnership;
• a contractual fund;
• a corporate entity;
• an investment company;
• a unitised fund;
• a trust;
• a series or compartment of a larger vehicle;
• or a combination of several entities and contractual arrangements.

Capital may be represented by:

• partnership interests;
• shares;
• units;
• commitments;
• capital accounts;
• shareholder loans;
• preferred instruments;
• or combinations of these.

Even apparently similar partnership structures can have different names.

An economically comparable structure may be described as a:

• Limited Partnership or LP;
• Commanditaire Vennootschap — CV;
• Société en Commandite Simple — SCS;
• Société en Commandite Spéciale — SCSp;
• Kommanditgesellschaft — KG;
• Société en Commandite par Actions — SCA;
• Kommanditgesellschaft auf Aktien — KGaA;
• Società in Accomandita Semplice — S.a.s.;
• Società in Accomandita per Azioni — S.a.p.A.;
• or another jurisdiction-specific form.

These structures belong to related legal families.

They are not legally interchangeable.

A corporate private equity vehicle may instead issue ordinary shares, preference shares, redeemable shares or several classes of participating shares.

A contractual fund may issue units.

A managed account may not issue an investor interest at all in the conventional sense: the investor may own the investments directly while appointing a manager under an investment-management agreement.

Yet the underlying economic purpose can be remarkably similar.

Investors provide capital.

A manager deploys that capital.

Investments generate gains and losses.

Those gains and losses ultimately belong economically to particular participants.

And the manager may participate in successful investment performance through carried interest or another form of performance participation.

The first principle of private equity structuring is therefore:

\[ \boxed{\text{Economic Function} \neq \text{Legal Form}} \]

That distinction will recur throughout this book.

Understanding the Structure

2. Start with economics, not entity names

When confronted with a private equity structure, it is tempting to begin with the names of the entities.

Is it an LP?

An SCSp?

A SICAV?

An FGR?

A company?

That is often the wrong starting point.

A more useful approach is first to ask what the arrangement actually does.

Who provides the capital?

Who legally owns the investments?

Who controls the investment decisions?

Does the investor commit capital in advance or fund immediately?

How is the investor's economic interest represented?

Does the vehicle have separate legal personality?

Who bears liability?

How are profits and losses allocated?

How are distributions made?

Can capital be returned?

Can interests be redeemed?

How does the investment manager participate in successful performance?

Only after answering these questions does the legal terminology become truly meaningful.

This distinction becomes particularly important for carried interest.

A waterfall implemented through the allocations of a Delaware Limited Partnership cannot simply be assumed to operate identically in a Luxembourg investment company whose investors own shares.

The economic intention may be similar.

The legal machinery through which that intention is achieved can be entirely different.

3. Six dimensions of a private equity structure

It is useful to distinguish six separate dimensions.

Legal form

What legally exists?

For example:

• LP;
• SCSp;
• SCA;
• company;
• FCP;
• FGR;
• trust.

Regulatory framework

Under what regulatory or investment-fund regime does the arrangement operate?

For example:

• AIF;
• RAIF;
• SIF;
• ELTIF;
• or another applicable regime.

Fund architecture

How are the legal entities connected?

For example:

• master-feeder;
• parallel funds;
• AIVs;
• blockers;
• HoldCos;
• BidCos;
• SPVs;
• co-investment vehicles.

Investor–manager arrangement

How has the investor appointed or engaged the manager?

For example:

• commingled fund;
• fund-of-one;
• separately managed account;
• investment mandate;
• joint venture;
• deal-by-deal arrangement.

Investment ownership

Where are the assets legally held?

They might sit in:

• the main fund;
• a parallel fund;
• an AIV;
• a HoldCo;
• an SPV;
• the investor itself;
• or a joint venture.

Performance participation

Where and how are the manager's performance economics created?

For example:

• partnership waterfall;
• special limited-partner interest;
• carry vehicle;
• special shares;
• growth shares;
• contractual performance participation;
• performance fee.

These dimensions can be combined almost indefinitely.

A pension fund might appoint a private equity manager under a dedicated mandate implemented through a Luxembourg SCSp and a parallel corporate vehicle, investing through AIVs, HoldCos and SPVs, while the manager's performance participation exists under a separate arrangement.

There is no contradiction.

These are different layers of the same economic relationship.

This leads to another central principle:

\[ \boxed{\text{Economic Programme} \neq \text{Single Legal Entity}} \]

Sometimes a fund is one entity.

A private equity programme frequently is not.

The Limited Partnership

4. The classic private equity structure

The Limited Partnership, or LP, remains perhaps the structure most closely associated with private equity.

Its popularity reflects the close fit between partnership law and the economics of a closed-end private equity fund.

At its simplest, it contains two categories of participant:

\[ \text{General Partner} \]

and:

\[ \text{Limited Partners} \]

The Limited Partners provide most of the capital.

The General Partner has responsibility for the partnership and, directly or through delegated arrangements, the management of its investment activities.

5. The Limited Partner

The Limited Partner is economically an investor in the partnership.

Institutional LPs can include:

• pension funds;
• insurance companies;
• sovereign wealth funds;
• endowments;
• family offices;
• funds-of-funds;
• banks;
• corporate investors;
• and other investment vehicles.

An LP normally makes a commitment rather than contributing its entire investment on Day 1.

If an LP commits:

\[ €100m \]

that does not ordinarily mean €100 million immediately enters the fund's bank account.

Instead, the GP calls capital as it is required.

The investor's economic relationship with the fund therefore develops through:

\[ \text{Commitment} \rightarrow \text{Contributions} \rightarrow \text{Allocations} \rightarrow \text{Distributions} \rightarrow \text{Capital Account} \]

These concepts will become important throughout the remainder of this book.

6. The General Partner

The General Partner occupies a fundamentally different legal and economic position.

Historically, the GP could bear unlimited liability for partnership obligations.

Modern private equity structures therefore frequently interpose a limited-liability entity to serve as the legal GP.

A structure might therefore contain:

\[ \text{Fund LP} \]\[ \downarrow \]\[ \text{Corporate GP} \]

while investment-management services are provided separately by:

\[ \text{Investment Manager / Adviser} \]

The entity formally acting as GP may therefore not contain the investment team itself.

7. The GP and the investment manager are not necessarily the same entity

In ordinary private equity language people frequently say:

“The GP made the investment.”

Economically, everybody understands what that means.

Legally, however, several different entities may be involved.

For example:

ABC Private Equity Fund V, L.P.

may have:

ABC Fund V GP Limited

as its General Partner.

Investment-management services may then be provided by:

ABC Capital Management Limited

while carried interest may be held through:

ABC Fund V Carry LP.

The expression GP can therefore colloquially describe an entire private equity organisation even though the legal GP is only one company within that organisation.

For carried-interest analysis, this distinction matters enormously.

8. A partnership interest is not a share

An LP does not necessarily own “shares” in the partnership.

It owns a partnership interest.

Its economics are determined through such things as:

• commitment;
• contributions;
• allocations;
• distributions;
• capital account;
• and the partnership agreement.

This is fundamentally different from a corporate shareholder whose legal asset is a number and class of shares issued by a company.

The distinction may initially appear technical.

Later we will see that it determines the entire accounting and data architecture.

9. The Limited Partnership Agreement

The central governing document of a conventional private equity LP is the:

Limited Partnership Agreement — LPA.

The LPA establishes both governance and economic rules.

It can govern:

• commitments;
• capital calls;
• investment period;
• investment restrictions;
• management fees;
• expenses;
• distributions;
• carried interest;
• preferred return;
• recycling;
• recallable distributions;
• transfers;
• defaults;
• key-person provisions;
• conflicts;
• LPAC;
• fund term;
• extensions;
• GP removal;
• and liquidation.

For carried-interest purposes, the LPA is therefore much more than a legal document.

It is effectively:

\[ \boxed{\text{The Economic Constitution of the Fund}} \]

The Partnership Family

10. Anglo-American Limited Partnerships

Limited Partnerships exist in numerous common-law jurisdictions.

Examples include:

• Delaware Limited Partnerships;
• English Limited Partnerships;
• Scottish Limited Partnerships;
• Cayman Islands Exempted Limited Partnerships;
• Jersey Limited Partnerships;
• Guernsey Limited Partnerships;
• Bermuda Limited Partnerships;
• and various Canadian provincial limited partnerships.

They share a legal ancestry.

They do not necessarily share identical legal characteristics.

One particularly important distinction is whether the partnership itself has separate legal personality.

That should never be inferred merely from the words Limited Partnership.

11. Separate legal personality

A legal person can generally own assets and incur obligations in its own name.

Some partnerships possess legal personality.

Others do not.

Where a fund does not itself possess separate legal personality, assets and contractual relationships may legally be held or entered into by the GP or another person acting for the partnership.

Economically, investors may nevertheless say:

“The fund owns the portfolio.”

That may be perfectly understandable commercially.

Legally, the position can be more nuanced.

Separate legal personality can affect:

• contracting;
• asset ownership;
• security;
• litigation;
• insolvency;
• tax;
• and administration.

12. The continental European partnership family

Civil-law jurisdictions have long contained structures based upon a distinction between:

• participants responsible for management; and
• capital-providing participants whose liability is limited according to applicable law.

Many descend conceptually from the historic commenda.

This explains the recurring terminology:

commandite — commanditaire — Kommandit — accomandita — comandita.

The languages differ.

The underlying historical concept is related.

13. The Dutch Commanditaire Vennootschap — CV

The traditional Dutch limited partnership is the:

Commanditaire Vennootschap — CV.

It distinguishes broadly between:

• beherende vennoten — managing/general partners; and
• commanditaire vennoten — limited partners.

Economically, this resembles the GP/LP distinction.

But:

\[ \text{CV} \neq \text{English LP} \]

in every legal respect.

The CV is a Dutch legal form governed by its own rules.

14. The société en commandite family

French and Luxembourg legal terminology contains the concept of the:

société en commandite.

Important forms include:

• Société en Commandite Simple — SCS;
• Société en Commandite Spéciale — SCSp;
• Société en Commandite par Actions — SCA.

These forms demonstrate particularly clearly that partnership economics can be implemented through very different legal machinery.

15. SCS and SCSp

The SCS broadly follows the commandite model.

Luxembourg also provides the SCSp, which has become particularly important for private funds.

One especially significant characteristic is that the SCSp does not itself have separate legal personality.

Nevertheless, it can function as a sophisticated private investment fund.

That demonstrates the difference between:

\[ \text{Legal Entity} \]

and:

\[ \text{Economic Fund} \]

A private equity fund does not have to be a corporation—or even necessarily a separate legal person.

At a simplified level:

The exact legal, tax and regulatory consequences remain jurisdiction-specific.

16. The German KG and GmbH & Co. KG

The German Kommanditgesellschaft — KG distinguishes between:

• Komplementär; and
• Kommanditist.

The Komplementär performs a role broadly comparable with the general partner.

The Kommanditist occupies the limited-partner position.

A particularly familiar variant is:

GmbH & Co. KG.

Here, the general partner is itself a limited-liability company.

Conceptually:

\[ \text{Investors / Kommanditisten} \]\[ \downarrow \]\[ \text{KG} \]

with:

\[ \text{GmbH as Komplementär} \]

This achieves an effect similar to the corporate GP commonly used in Anglo-American fund structures.

17. Italian accomandita structures

Italian law contains the same broader legal family:

• Società in Accomandita Semplice — S.a.s.;
• Società in Accomandita per Azioni — S.a.p.A.

Again, the linguistic relationship with commandite, commanditaire and Kommandit is not accidental.

They reflect variations of the distinction between capital-providing participants and managing participants with different responsibilities and liabilities.

The important lesson is not to translate these names too literally.

Translation identifies the family.

Local law determines the actual rights.

Partnerships with Capital Divided into Shares

18. Partnership and share capital are not mutually exclusive

It is tempting to think:

\[ \text{Partnership} = \text{Capital Accounts} \]

while:

\[ \text{Company} = \text{Shares} \]

Legal systems are not always that tidy.

Some recognise partnership-style structures in which investor capital is represented by shares.

The Société en Commandite par Actions — SCA is a prominent example.

Literally, it is a partnership limited by shares.

It combines:

\[ \text{Commandite Characteristics} + \text{Share Capital} \]

Germany's KGaA — Kommanditgesellschaft auf Aktien provides another example.

The distinction between partnership funds and share-based funds is therefore not binary.

Hybrid structures exist.

Corporate Private Equity Funds

19. Investors can be shareholders

A private equity fund can simply be organised as a company.

Instead of becoming an LP, the investor subscribes for:

\[ \text{Shares} \]

The investment company owns the portfolio.

The investors own the investment company.

Conceptually:

\[ \text{Investors} \rightarrow \text{Shares} \rightarrow \text{Investment Company} \rightarrow \text{Portfolio} \]

The constitutional and contractual documents can nevertheless recreate many of the economics associated with a closed-end partnership fund.

20. Share capital does not necessarily mean fully funded capital

A corporate fund does not necessarily require investors to fund their entire commitment immediately.

Depending upon the legal structure, commitment-and-drawdown economics may be implemented through:

• partly paid shares;
• contractual subscription commitments;
• commitments to subscribe for additional shares;
• shareholder loans;
• different share classes;
• or combinations of these.

For example, an investor could economically commit:

\[ €100m \]

while initially funding:

\[ €20m \]

with the remaining €80 million becoming payable under the fund documentation.

Economically, that resembles an LP drawdown structure.

Legally, the investor remains a shareholder.

21. Share classes can reproduce complex economics

A corporate fund may have:

• ordinary shares;
• preference shares;
• redeemable preference shares;
• participating preference shares;
• non-voting shares;
• management shares;
• founder shares;
• performance shares;
• growth shares;
• or other classes.

Different classes can have different rights to:

• income;
• capital;
• voting;
• redemption;
• liquidation proceeds;
• and performance participation.

A corporate structure can therefore reproduce sophisticated economic waterfalls through share rights rather than partnership allocations.

This is particularly important for carried interest.

Performance participation does not have to exist as an allocation to a GP.

It may instead exist as a right attached to a special class of shares.

Investment Companies, Contractual Funds and Trusts

22. SICAV and SICAF

A frequently encountered European term is:

SICAV — Société d'Investissement à Capital Variable.

Broadly, this means an investment company with variable capital.

A corresponding fixed-capital concept may be described as:

SICAF — Société d'Investissement à Capital Fixe.

The precise legal and regulatory meaning depends upon the jurisdiction.

The distinction is nevertheless relevant to private equity because the liquidity characteristics of the fund vehicle need to be considered in relation to the illiquidity of the underlying portfolio.

23. Legal form and regulatory regime are different things

This distinction is essential.

Terms such as:

• LP;
• SCS;
• SCSp;
• SCA;
• company;
• partnership

describe legal forms.

Terms such as:

• AIF;
• RAIF;
• SIF;
• ELTIF;
• SICAR

relate to regulatory or investment-fund classifications or regimes.

Therefore:

\[ \boxed{\text{Legal Form} \neq \text{Regulatory Classification}} \]

A regulatory regime may permit more than one legal form.

Confusing these dimensions is a common source of misunderstanding.

24. Contractual funds

A fund does not necessarily have to be a company or partnership.

A contractual fund can represent a pool of assets without itself being a conventional legal person.

Investors may participate through:

\[ \text{Units} \]

while a management company, depositary or other party performs the legal functions required to operate the arrangement.

A well-known example is the Luxembourg:

Fonds Commun de Placement — FCP.

Investors hold units in a contractual pool rather than shares in a corporation.

25. The Dutch FGR

The Netherlands has the:

Fonds voor Gemene Rekening — FGR.

Again, investors participate contractually rather than necessarily becoming shareholders or partners in a separate legal entity.

Its precise legal and tax consequences depend upon the applicable rules.

The conceptual lesson is more general:

\[ \boxed{\text{Economic Fund Ownership Does Not Require a Fund Company}} \]

26. Units are economically familiar but legally different

Suppose a contractual fund has:

\[ 1,000,000\ units \]

and Investor A owns:

\[ 100,000\ units. \]

Its economic participation might therefore be:

\[ 10\% \]

That resembles owning 10% of a company's shares.

But the legal rights can be entirely different.

Shares, units and partnership interests should therefore never be treated as synonymous merely because they generate similar percentages.

27. Trust structures

Common-law jurisdictions can also use trusts for collective investment.

Under a trust arrangement, legal ownership of the assets is generally held by a:

\[ \text{Trustee} \]

for the benefit of:

\[ \text{Unitholders / Beneficiaries}. \]

The investors therefore possess beneficial interests rather than direct legal ownership of the fund assets.

Conceptually:

\[ \text{Unitholders} \]\[ \downarrow \]\[ \text{Beneficial Interests / Units} \]\[ \downarrow \]\[ \text{Trustee} \]\[ \downarrow \]\[ \text{Fund Assets} \]

The investment manager may again be a separate party.

Ownership, management and economic participation can therefore reside in different places.

Closed-End Fund Architecture

28. Asset liquidity and fund liquidity should match

Private equity funds own assets that can take months or years to sell.

If investors could demand immediate redemption at any time, the fund could face a fundamental mismatch:

\[ \text{Investor Demands Cash Today} \]

while:

\[ \text{Portfolio Cannot Be Sold Today}. \]

The conventional closed-end fund solves this problem by committing investors for the duration of the investment programme.

Liquidity normally comes from:

\[ \text{Realisation of Investments} \]

rather than:

\[ \text{Redemption from the Fund}. \]

This is one reason why the traditional private equity fund is structurally different from many open-ended investment products.

29. Master-feeder structures

A fund may have investors with different:

• tax positions;
• regulatory requirements;
• legal restrictions;
• currencies;
• jurisdictions.

Rather than placing everybody directly into one vehicle, investors may enter through feeders.

Conceptually:

\[ \text{Investor Group A} \rightarrow \text{Feeder A} \]\[ \text{Investor Group B} \rightarrow \text{Feeder B} \]\[ \text{Investor Group C} \rightarrow \text{Feeder C} \]\[ \downarrow \]\[ \text{Master Fund} \]\[ \downarrow \]\[ \text{Portfolio} \]

The feeders provide different legal routes into substantially the same underlying investment pool.

30. Parallel funds

Parallel funds solve a related problem differently.

Rather than feeding into a common master, several vehicles invest side by side.

For example:

\[ \begin{aligned} \text{Main Fund} &= 70\%\\ \text{Parallel Fund} &= 20\%\\ \text{Executive Vehicle} &= 5\%\\ \text{Co-Investment Vehicle} &= 5\% \end{aligned} \]

all investing into the same transaction.

Parallel vehicles may exist because of:

• tax;
• regulation;
• investor type;
• geography;
• currency;
• legal restrictions;
• commercial requirements.

The portfolio may therefore appear economically unified while being legally fragmented.

For carried-interest administration, that distinction can be crucial.

31. Alternative Investment Vehicles

An Alternative Investment Vehicle — AIV may be created for a particular investment.

Suppose investing through the main fund would produce an undesirable legal, regulatory or tax consequence.

The investment may instead be made through an AIV.

Economically, it can remain part of the fund programme.

Legally, the investment sits elsewhere.

This gives us another central distinction:

\[ \boxed{\text{Economic Perimeter} \neq \text{Legal Perimeter}} \]

A fund programme can economically include:

• main fund;
• parallel funds;
• AIVs;
• feeders;
• co-investment vehicles;

even though accounting systems naturally maintain each legal entity separately.

32. Blocker companies

A blocker is typically a company interposed between an investor or fund and an underlying investment for tax, regulatory or other reasons.

Conceptually:

\[ \text{Fund} \rightarrow \text{Blocker} \rightarrow \text{Portfolio Investment} \]

The fund legally owns the blocker.

Its economic exposure ultimately relates to the underlying investment.

Once again:

\[ \text{Legal Ownership Chain} \neq \text{Economic Exposure} \]

33. HoldCo, BidCo and acquisition structures

Even a relatively straightforward buyout can involve:

\[ \text{Fund} \]\[ \downarrow \]\[ \text{Acquisition HoldCo} \]\[ \downarrow \]\[ \text{BidCo} \]\[ \downarrow \]\[ \text{Portfolio Company} \]

Debt may exist at one level.

Management equity may sit at another.

Different investors may enter at different points.

HoldCos and BidCos can facilitate:

• acquisition execution;
• financing;
• security;
• tax structuring;
• management equity;
• liability ring-fencing;
• future disposals;
• governance.

The asset appearing in the fund's ledger may therefore be several legal steps removed from the operating business that everybody colloquially calls “the investment.”

34. Special Purpose Vehicles

An SPV — Special Purpose Vehicle is an entity established for a particular purpose or transaction.

An SPV might:

• hold an investment;
• borrow acquisition debt;
• aggregate co-investors;
• hold management equity;
• facilitate a secondary transaction;
• isolate a legal exposure.

SPV therefore describes a function, not a legal form.

An SPV can itself be a company, partnership or another type of vehicle.

35. Co-investment vehicles

Suppose a fund wishes to make a:

\[ €300m \]

equity investment but wants only:

\[ €200m \]

of exposure.

Selected LPs may provide the remaining:

\[ €100m \]

through a co-investment vehicle.

Conceptually:

\[ \text{Main Fund €200m} + \text{Co-Investment €100m} \rightarrow \text{Portfolio Company} \]

The co-investment vehicle may have different management-fee and carried-interest terms from the main fund.

It may nevertheless participate in exactly the same underlying asset.

From Commingled Funds to Bespoke Mandates

36. A private equity programme does not require a commingled fund

The conventional private equity model is:

\[ \text{Multiple Investors} \rightarrow \text{Commingled Fund} \rightarrow \text{Portfolio} \]

Several investors commit to a common programme and delegate investment selection to the manager within the mandate established by the fund documents.

But institutional private equity does not have to be organised this way.

A large investor may instead use:

• a fund-of-one;
• a separately managed account;
• a dedicated investment mandate;
• a dedicated investment company;
• a contractual investment programme;
• a joint venture;
• a deal-by-deal arrangement.

The manager may still perform exactly the activities we associate with private equity:

• sourcing;
• due diligence;
• acquisition negotiation;
• financing;
• governance;
• portfolio monitoring;
• value creation;
• exit.

What changes is the investor–manager relationship.

37. The commingled fund

Suppose:

\[ LP_A=€200m \]\[ LP_B=€150m \]\[ LP_C=€100m \]\[ LP_D=€50m \]

giving:

\[ \text{Total Commitments}=€500m. \]

The investors participate in a common investment programme.

Subject to the LPA, they do not ordinarily choose whether to participate in each individual acquisition.

They commit to:

\[ \text{The Programme} \]

rather than:

\[ \text{Each Investment}. \]

This creates a relatively clear economic perimeter:

• investors;
• commitments;
• contributions;
• investments;
• expenses;
• distributions;
• NAV;
• carry.

That clarity becomes important when performance and carried interest are calculated.

38. The fund-of-one

A fund-of-one retains much of the conventional fund architecture but is dedicated principally to one investor.

Conceptually:

\[ \text{Institutional Investor} \rightarrow \text{Dedicated Fund} \rightarrow \text{Portfolio} \]

Suppose a pension fund wants to allocate:

\[ €1bn \]

to a private equity manager.

Instead of investing €1 billion in the manager's €10 billion commingled fund, it may establish a dedicated vehicle.

That vehicle can still have:

• a GP;
• investment manager;
• investment period;
• commitments;
• drawdowns;
• investment restrictions;
• distributions;
• management fees;
• performance participation.

But the terms can be customised for the investor.

They might address:

• geography;
• sectors;
• leverage;
• investment size;
• concentration;
• exclusions;
• co-investment;
• reporting;
• governance;
• currency;
• liquidity;
• performance participation.

A fund-of-one therefore sits between a conventional commingled fund and a fully bespoke mandate.

39. Separately Managed Accounts

A Separately Managed Account — SMA goes further.

An institutional investor appoints a manager to operate a dedicated investment programme specifically for that investor.

Terms such as:

• managed account;
• separate account;
• segregated account;
• dedicated account;
• dedicated investment programme;
• SMA

may be used in practice, although their exact meanings are not necessarily identical.

The important economic feature is:

\[ \text{Single Investor} \rightarrow \text{Dedicated Investment Programme}. \]

The investor may negotiate bespoke:

• strategy;
• geography;
• sectors;
• concentration;
• leverage;
• ESG requirements;
• approval rights;
• co-investment;
• reporting;
• valuation;
• governance;
• fees;
• performance economics.

The investor has moved from participating in somebody else's pooled fund towards appointing somebody to manage its own private equity programme.

40. A managed account is not a legal form

This distinction is critical.

Managed account describes an economic and investment-management relationship.

It does not necessarily tell us what legal structure exists underneath.

A managed account might be implemented through:

• an LP;
• CV;
• company;
• FGR;
• trust;
• dedicated investment vehicle;
• multiple SPVs;
• directly owned investments;
• or another bespoke structure.

Therefore:

\[ \boxed{\text{Managed Account} \neq \text{Legal Wrapper}} \]

A fund-of-one can be one implementation of a managed-account relationship.

But it is not the only implementation.

41. The mandate

The word mandate describes another layer.

The managed account describes the dedicated investment arrangement.

The mandate describes the authority granted to the investment manager and the contractual boundaries within which it may act.

A mandate may specify:

• investment objective;
• permitted investments;
• prohibited investments;
• geography;
• concentration limits;
• leverage;
• investment period;
• risk limits;
• approval requirements;
• reporting;
• valuation;
• fees;
• performance participation;
• termination.

Conceptually:

\[ \text{Investor} \rightarrow \text{Mandate} \rightarrow \text{Investment Manager} \rightarrow \text{Investment Decisions} \]

A mandate can sit over a dedicated legal vehicle.

But it does not have to.

42. A mandate can exist without a mandate entity

This is one of the most important structural concepts in this chapter.

A mandate may be economically meaningful while possessing no:

• balance sheet;
• income statement;
• general ledger;
• bank account;
• legal personality.

Its economic programme may consist of:

\[ SPV_A+SPV_B+SPV_C+\text{Direct Investment}+\text{Cash}+\text{Financing} \]

without there being any legal entity called:

\[ \text{“The Mandate.”} \]

This creates a fundamental distinction:

\[ \boxed{\text{Legal Perimeter} \neq \text{Economic Perimeter}} \]

43. The investor may own the investments directly

Under a conventional fund:

\[ \text{Investor} \rightarrow \text{Fund} \rightarrow \text{Investment}. \]

Under a mandate:

\[ \text{Investor} \rightarrow \text{Investment} \]

while separately:

\[ \text{Manager} \rightarrow \text{Investment Management Agreement} \rightarrow \text{Investor}. \]

Alternatively, the investor may own several dedicated SPVs.

The manager manages the programme without itself controlling a conventional pooled fund.

This has major consequences for accounting and data.

There may no longer be one fund ledger containing the complete economic history.

44. Capital does not always move through a fund

The conventional cash-flow chain is:

\[ LP \rightarrow Capital\ Call \rightarrow Fund \rightarrow Investment \]

followed later by:

\[ Investment \rightarrow Fund \rightarrow Distribution \rightarrow LP. \]

A mandate can operate differently.

Capital might move:

\[ Investor \rightarrow SPV_A \rightarrow Investment_A \]

while another amount moves:

\[ Investor \rightarrow SPV_B \rightarrow Investment_B. \]

Fees may be paid:

\[ Investor \rightarrow Manager. \]

Financing may sit in another vehicle.

Exit proceeds may be paid directly to the investor, retained in an SPV, used to repay financing or reinvested.

There may therefore be no single bank account through which the entire programme can be observed.

45. The economic perimeter sometimes has to be constructed

Suppose an investor has a €500 million mandate.

Four dedicated SPVs own investments.

Management fees are paid directly by the investor.

A separate financing vehicle supports one acquisition.

Transaction costs sit in the SPVs.

Some proceeds are distributed directly.

Others remain in the investment vehicles.

Performance participation is calculated under the management agreement.

Every individual legal entity can have perfectly accurate accounts.

Yet none of those ledgers necessarily answers:

How has the €500 million mandate performed?

There may be no ledger for the mandate itself.

Its economic history must be reconstructed.

That leads to an important principle:

\[ \boxed{ \text{Correct Formula} + \text{Wrong Economic Perimeter} = \text{Wrong Carry} } \]

46. Ownership, management and administration are different functions

A bespoke mandate makes distinctions visible that can be hidden inside a conventional fund.

Asset ownership may sit with the institutional investor.

Investment management may sit with the private equity manager.

Administration may be performed by an administrator.

Custody may sit with another institution.

Financing may exist in separate vehicles.

Performance participation may be contractual.

Therefore:

\[ \boxed{ Ownership \neq Management \neq Administration \neq Economic\ Participation } \]

They can be connected.

They are not synonymous.

47. Managed accounts can use an FGR or another dedicated vehicle

A dedicated mandate may be implemented through an FGR or another contractual vehicle.

For example:

\[ \text{Institutional Investor} \]\[ \downarrow \]\[ \text{Dedicated FGR} \]\[ \downarrow \]\[ \text{Investment Mandate} \]\[ \downarrow \]\[ \text{Manager} \]\[ \downarrow \]\[ \text{Portfolio} \]

The FGR provides the investment structure.

The mandate establishes the manager's authority.

The accounting follows the legal and contractual architecture of the FGR.

This again demonstrates:

\[ \boxed{ Economic\ Product \neq Legal\ Structure \neq Accounting\ Model } \]

48. From pooled fund to deal-by-deal investing

Investor–manager arrangements can therefore be thought of as a spectrum:

\[ \text{Commingled Blind-Pool Fund} \]\[ \downarrow \]\[ \text{Fund-of-One} \]\[ \downarrow \]\[ \text{Separately Managed Account} \]\[ \downarrow \]\[ \text{Investment Mandate} \]\[ \downarrow \]\[ \text{Deal-by-Deal} \]

The boundaries are not absolute.

One investor may simultaneously participate in:

\[ \text{Main Fund} + \text{SMA} + \text{Co-Investments}. \]

A mandate may use a partnership.

A fund-of-one may have parallel vehicles.

An SMA may invest alongside the commingled fund.

Terminology alone therefore never tells us enough.

Other Investment Structures

49. Pledge funds

A pledge fund occupies another point on the spectrum.

Investors agree to participate in an investment programme but retain greater discretion over individual transactions.

This differs from the conventional blind-pool model, where the investor commits capital and delegates investment selection to the GP subject to the LPA.

The distinction is therefore principally one of:

\[ \text{Delegated Blind-Pool Discretion} \]

versus:

\[ \text{Deal-Level Investor Choice}. \]

50. Search funds

A search fund generally finances an entrepreneur or small team seeking to identify, acquire and operate a business.

Its structure can differ substantially from the institutional buyout-fund model.

Its inclusion is useful because it reinforces the broader point:

private equity describes an economic activity, not one mandatory legal architecture.

51. Evergreen structures

Not every private equity vehicle has a ten-year life.

An evergreen vehicle can continue indefinitely, reinvesting proceeds rather than ultimately liquidating an entire portfolio at the end of a predetermined term.

That changes the economics of:

• liquidity;
• performance measurement;
• distributions;
• portfolio turnover;
• carried interest;
• and potentially the J-curve.

Successive investment cycles can overlap within the same vehicle.

52. Permanent capital

A permanent-capital vehicle has no conventional requirement to return all capital at the end of a finite fund life.

Examples can include:

• listed investment companies;
• holding companies;
• certain insurance-backed structures;
• other long-duration investment vehicles.

Permanent capital removes one of the important constraints of the conventional PE fund:

\[ \text{The Need to Realise the Portfolio Within a Finite Fund Life}. \]

53. Listed private equity

A vehicle investing in private companies can itself be publicly traded.

The underlying portfolio remains private.

But the investors in the vehicle may obtain liquidity through a stock exchange.

There are therefore two markets:

\[ \text{Private Market for Portfolio Assets} \]

and:

\[ \text{Public Market for Fund Shares}. \]

The listed vehicle can trade at a premium or discount to NAV.

The liquidity of the security does not make the underlying portfolio liquid.

54. Secondary fund interests

An LP does not necessarily have to wait until every portfolio investment has been realised.

Its fund interest can itself be sold.

A secondary buyer may acquire:

• existing NAV;
• future distributions;
• remaining unfunded commitments;
• associated rights and obligations.

This creates a negotiated market for transferring an illiquid investment interest.

It does not transform the underlying private equity portfolio into a continuously traded asset.

55. Continuation vehicles

A GP may establish a continuation vehicle to acquire one or more assets from an existing fund.

Existing investors may be offered choices such as:

• cash out;
• roll into the continuation vehicle;
• or combine the two.

New investors can provide additional capital.

The asset therefore changes ownership structure without necessarily ending the GP's involvement.

This is another illustration of why private equity structures must be understood historically rather than only through today's organisation chart.

Management, Employee and Carry Vehicles

56. Management can invest through separate structures

GP professionals and portfolio-company executives may invest through:

• employee partnerships;
• management companies;
• trusts;
• nominee arrangements;
• dedicated investment vehicles;
• special share classes.

These structures may be used for:

• co-investment;
• management equity;
• carried interest;
• or combinations of these.

57. Carry does not necessarily sit in the GP

A common conceptual shortcut is:

\[ GP=\text{Carry Recipient}. \]

That is not necessarily legally correct.

Carry may be held by:

• a carry partnership;
• Special Limited Partner;
• carried-interest company;
• employee partnership;
• trust;
• special share class;
• another dedicated vehicle.

The fund may generate and allocate the carry while another structure determines how that value is divided among individual investment professionals.

58. The Special Limited Partner

Some funds use a Special Limited Partner — SLP as the carried-interest recipient.

The SLP may have a relatively small capital commitment but substantial economic rights once the carry conditions have been satisfied.

This demonstrates again that:

\[ \text{Capital Ownership Percentage} \neq \text{Economic Participation Percentage}. \]

The economic rights are determined by the governing documents.

59. Management, control and carry can be structurally separate

A private equity organisation can therefore contain at least three distinct functions.

Fund management

Performed by the investment manager.

Legal fund control

Performed by the GP or equivalent.

Performance participation

Held by a carry vehicle, SLP or special class.

The ultimate owners may overlap.

Legally and administratively, the functions remain distinct.

60. Carry through shares and growth shares

In a corporate structure, carry-like economics can be implemented through:

• founder shares;
• performance shares;
• growth shares;
• preference shares;
• participating shares;
• other special classes.

A growth-share arrangement might provide that ordinary investors receive value up to a specified threshold, after which another class participates disproportionately in additional value.

Economically, this can resemble:

\[ \text{Hurdle} + \text{Carry Participation}. \]

Legally, however, it is implemented through share rights.

The economic objective can therefore be replicated using completely different legal instruments.

Capital Instruments and Compartments

61. Investor capital need not consist entirely of equity

A private equity structure may be funded partly through equity and partly through debt.

An investor could provide:

\[ €10m\ Share\ Capital + €90m\ Shareholder\ Loan. \]

Its €100 million exposure therefore consists of two different legal claims.

This can affect:

• priority;
• distributions;
• accounting;
• tax;
• and waterfall modelling.

62. Preferred instruments can contain their own waterfall

Preferred instruments can provide:

• priority repayment;
• preferred return;
• fixed or floating yield;
• conversion;
• participation above a threshold;
• other preferential rights.

Consequently, a waterfall does not always sit solely in a distribution clause.

Part of the waterfall can be embedded directly in the capital structure.

63. Umbrella funds and compartments

An umbrella structure can contain multiple sub-funds or compartments.

For example:

\[ \text{Umbrella Fund} \]

with:

• Compartment A — Buyout;
• Compartment B — Growth;
• Compartment C — Secondaries.

Depending upon applicable law, each compartment may have:

• separate assets;
• separate investors;
• separate strategy;
• separate NAV;
• ring-fenced liabilities.

Investors may subscribe to one compartment rather than the entire umbrella.

This allows infrastructure to be shared while preserving distinct economic pools.

Some jurisdictions use series to achieve a similar result.

Again, terminology should not substitute for understanding what the structure actually does.

The Fund Is Usually a Network

64. The organisational chart

A sophisticated private equity programme may look more like:

\[ \text{LPs} \]\[ \downarrow \]\[ \text{Feeders} \]\[ \downarrow \]\[ \text{Main Fund + Parallel Funds} \]

with:

\[ \text{AIVs + Co-Investment Vehicles} \]

feeding into:

\[ \text{HoldCo} \rightarrow \text{BidCo} \rightarrow \text{Portfolio Company} \]

while separately:

\[ \text{GP} \]

and:

\[ \text{Investment Manager} \]

perform control and management functions, and:

\[ \text{Carry Vehicle} \rightarrow \text{Individual Carry Participants} \]

holds performance economics.

That is far closer to reality than:

\[ LP\rightarrow Fund\rightarrow Company. \]

65. Legal ownership and economic ownership

Suppose:

\[ Fund_A=80\%\ of\ HoldCo \]

and:

\[ CoInvest=20\%\ of\ HoldCo. \]

HoldCo owns 100% of BidCo.

BidCo owns 100% of Portfolio Company.

Fund A does not appear directly on the Portfolio Company's shareholder register.

Nevertheless, Fund A has substantial economic exposure to the operating company through the ownership chain.

This distinction becomes particularly important for performance and carry systems.

The system must understand relationships, not merely legal shareholder registers.

66. Structures change over time

A fund structure is not static.

Over ten or fifteen years:

• investors transfer interests;
• parallel vehicles are added;
• AIVs are established;
• investments are restructured;
• entities merge;
• debt converts into equity;
• continuation vehicles are established;
• management equity is reorganised;
• carry interests are transferred or reallocated.

Understanding the structure therefore requires:

\[ \text{Historical Structure} \]

not merely:

\[ \text{Today's Organisation Chart}. \]

Legal Form, Tax and Regulation

67. Jurisdiction alone tells us very little

Saying:

“It is a Luxembourg fund”

does not adequately describe the structure.

We still need to ask:

• What legal form?
• What regulatory regime?
• What tax classification?
• Who is the manager?
• Where are the investors?
• Where are the assets?
• Does the vehicle have legal personality?
• How is capital represented?
• Which documents create the economics?

A Luxembourg vehicle might be an SCSp, SCS, SCA or corporate entity and operate within different regulatory frameworks.

Jurisdiction is only one dimension.

68. Legal form, tax classification and regulatory status must be separated

These are three different analytical questions.

Legal form

What legally exists?

Tax classification

How is that vehicle treated for tax purposes?

Regulatory classification

Under what investment-fund or manager regime does it operate?

They interact.

They are not synonymous.

69. Transparent and opaque structures

Partnerships are often described as tax transparent.

Companies are often described as tax opaque.

Those are useful general concepts, but they are not universal rules.

Tax classification can depend upon:

• jurisdiction;
• legal characteristics;
• elections;
• investor jurisdiction;
• treaties;
• domestic tax law.

One jurisdiction may classify a foreign entity differently from another.

Therefore:

\[ \boxed{\text{Legal Form Does Not Determine Tax Treatment by Itself}} \]

70. Hybrid entities

A hybrid entity may be classified differently in different jurisdictions.

Country A might treat a vehicle as transparent.

Country B might treat the same vehicle as opaque.

That mismatch can have significant tax consequences.

Private equity structures spanning investors and assets in multiple jurisdictions therefore require entity-classification analysis rather than assumptions based on names.

71. Complexity exists for a reason—but has a cost

Private equity structures may need simultaneously to accommodate:

• investors in many countries;
• pension funds;
• taxable investors;
• tax-exempt investors;
• sovereign investors;
• regulated institutions;
• portfolio companies in multiple jurisdictions;
• leverage;
• co-investment;
• management participation;
• carried interest;
• regulatory requirements.

One vehicle may not efficiently satisfy all these objectives.

Hence structural layering.

But every additional entity also creates:

• documents;
• accounts;
• bank accounts;
• tax filings;
• regulatory obligations;
• reconciliations;
• governance;
• data;
• operational risk.

Complexity therefore needs economic justification.

A complicated structure is not automatically a sophisticated structure.

Structure Determines Accounting and Data

72. What does the investor actually own?

This is where the structural discussion becomes operational.

Suppose two investors each invest €10 million in economically identical private equity programmes.

Investor A owns shares in an investment company.

Investor B is an LP in a partnership.

Their economic exposure may appear similar.

Their legal assets are fundamentally different.

Investor A owns:

\[ \boxed{\text{Shares in the Fund}} \]

Investor B owns:

\[ \boxed{\text{Partnership Interest}} \]

That difference determines how their economics are represented.

73. The shareholder owns shares—not pieces of every underlying asset

Suppose an investor owns 10% of a corporate investment company.

The company itself owns:

• portfolio investments;
• cash;
• receivables;
• other assets;

and owes:

• borrowings;
• payables;
• other liabilities.

The shareholder does not, merely because it owns 10% of the company's shares, legally own 10% of every asset and liability.

Its legal asset is:

\[ \text{A Number and Class of Shares}. \]

The value of those shares derives from the company's net assets.

That is not the same thing as owning the underlying assets directly.

74. A partnership interest works differently

A partner participates in the economics of the partnership according to the partnership agreement.

Those economics can include allocations of:

• investments;
• cash;
• receivables;
• borrowings;
• payables;
• income;
• realised gains;
• unrealised gains;
• management fees;
• financing costs;
• other expenses;
• capital.

The allocation does not necessarily equal a simple ownership percentage.

The LPA determines the rules.

This produces the capital account.

75. The capital account is a history

Conceptually:

\[ \boxed{ Closing\ Capital = Opening\ Capital + Contributions + Allocated\ Income + Allocated\ Gains - Allocated\ Expenses - Allocated\ Losses - Distributions } \]

A capital account therefore tells us more than today's value.

It records how the partner arrived at its current economic position.

That becomes particularly important when carried interest changes the allocation of profits among different partners.

Two investors with equal commitments do not necessarily have equal capital accounts.

The governing agreement determines the economics.

76. Shares produce a different data model

Suppose a corporate fund has:

• 10 million shares;
• €500 million NAV;
• Investor A owns 500,000 shares.

Investor A owns 5% of the shares.

The core investor-level data relationship may be:

\[ Investor \rightarrow Share\ Class \rightarrow Number\ of\ Shares \rightarrow NAV\ per\ Share. \]

The company's underlying trial balance remains the company's trial balance.

The investor's shares increase or decrease in value.

That is fundamentally different from partnership allocations.

77. Partnership interests produce an allocation-based model

For an LP, the data relationship is more naturally:

\[ Partner \rightarrow Partnership\ Interest \rightarrow Commitment \rightarrow Contributions \rightarrow Allocations \rightarrow Distributions \rightarrow Capital\ Account. \]

Underneath that capital account sits the investor's allocated economic history.

The legal form therefore does not merely appear as an informational field in the database.

It determines what the database needs to record.

78. The same economic event creates different accounting records

Suppose a portfolio investment appreciates by:

\[ €10m. \]

In a company, the €10 million unrealised gain belongs in the company's accounts.

The shareholder still owns the same number of shares.

Its NAV has increased.

In a partnership, the same €10 million gain may be allocated among partners.

If Investor A is entitled to 10%:

\[ Allocated\ Unrealised\ Gain_A=€1m. \]

That allocation increases Investor A's capital account.

Same underlying economic event.

Different investor-level accounting.

The structure determined the representation.

79. Structure determines the accounting object

At a simplified level:

This is why a system assuming:

\[ Investor=LP \]

will eventually fail.

So will a system assuming:

\[ Investor=Shareholder. \]

The concept Investor sits above the legal instrument through which the investor participates.

80. Layering multiplies the data problem

An investor might own shares in a feeder.

The feeder owns a partnership interest in a master fund.

The master owns shares and shareholder loans in an AIV.

The AIV owns HoldCo.

HoldCo owns BidCo.

BidCo owns the portfolio company.

The same investment structure can therefore simultaneously contain:

\[ Shares \rightarrow Partnership\ Interest \rightarrow Shares + Debt \rightarrow Shares. \]

Each layer has its own legal and accounting meaning.

81. Legal ledger and economic perimeter can diverge

Consider:

\[ Investor \rightarrow Corporate\ Feeder \rightarrow Master\ LP \rightarrow AIV \rightarrow HoldCo \rightarrow Portfolio\ Company. \]

A dividend may legally travel through several entities.

A gain may be recognised at one level.

Debt may exist at another.

Carry may be calculated at the master-fund level.

The investor may legally own only shares in the feeder.

Therefore:

\[ \boxed{\text{Legal Ledger} \neq \text{Economic Perimeter}} \]

This distinction is fundamental to performance and carry.

82. Structure determines data lineage

It is not enough to know that €10 million was received.

A carry or performance system may need to know:

• Who received it?
• From whom?
• Which investment did it relate to?
• What kind of cash flow was it?
• At what structural level did it occur?
• Which investors participated economically?
• Did it affect capital accounts?
• Did it affect NAV per share?
• Was it distributable?
• Did it enter the waterfall?
• Was it income, capital, gain, repayment or financing?

Conceptually:

\[ Underlying\ Event \rightarrow Legal\ Transaction \rightarrow Accounting\ Entry \rightarrow Investor\ Allocation \rightarrow Performance \rightarrow Carry. \]

The structure determines that lineage.

Structure and Performance

83. Performance exists at different structural levels

Suppose an LP invests through a feeder.

The feeder invests in the master.

The master owns the portfolio.

We can legitimately calculate:

• portfolio-company return;
• investment-level return;
• master-fund gross return;
• feeder return;
• LP net return.

These are not competing answers.

They answer different questions.

The structure determines which cash flows belong in each calculation.

84. The J-curve can also exist at different levels

The J-curve can be observed at:

\[ Portfolio\ Investment \]\[ \downarrow \]\[ Fund \]\[ \downarrow \]\[ Feeder \]\[ \downarrow \]\[ LP. \]

Cash-flow timing can differ at every level.

A subscription facility or feeder structure can alter the timing experienced by the LP without changing the operating performance of the underlying portfolio.

Structure therefore matters even when the ultimate investment is unchanged.

Structure and Carried Interest

85. There is no universal legal object called “the carry”

Carried interest is an economic participation in successful investment performance.

But that participation has to exist somewhere legally.

It might be implemented through:

• GP allocation;
• Special Limited Partner;
• carry partnership;
• special shares;
• growth shares;
• preference shares;
• units;
• contractual profit participation;
• performance fee;
• another instrument.

Therefore:

\[ \boxed{\text{Carried Interest is an Economic Concept Implemented Through Legal Rights}} \]

86. The same economics can have different legal expressions

Suppose three structures each generate:

\[ €100m \]

of qualifying profit and provide:

\[ 20\% \]

to the investment team.

Structure A — Partnership carry

\[ €20m \rightarrow Special\ Limited\ Partner. \]

Structure B — Special shares

\[ €20m \rightarrow Economic\ Rights\ of\ Participating\ Shares. \]

Structure C — Contractual participation

\[ €20m \rightarrow Performance\ Participation\ Vehicle. \]

Economically:

\[ Carry=€20m \]

in each case.

Legally, three different events have occurred.

That distinction can change:

• accounting;
• data;
• tax;
• administration;
• payment mechanics.

87. Carry as an allocation is not the same as a performance fee

Consider:

Performance fee

\[ Fund \rightarrow Manager = Performance\ Fee. \]

The manager receives remuneration under a service relationship.

Partnership carry

\[ Partnership\ Profit \rightarrow Profit\ Allocation \rightarrow Carry\ Partner. \]

The recipient participates in partnership economics.

Even if:

\[ Economic\ Amount_{Fee} = Economic\ Amount_{Allocation}, \]

we still have:

\[ \boxed{\text{Carry as Allocation} \neq \text{Performance Fee}} \]

The distinction can affect accounting, indirect taxes, income classification, capital-gain treatment, withholding, employment taxation, social charges and timing of taxation, depending upon jurisdiction.

Before analysing the tax treatment of carry, we must first determine:

What is the carry legally?

88. Carry as a partnership interest

Where carry is implemented through a partnership interest, the carry participant may itself have a capital account.

Conceptually:

\[ Opening\ Capital + Contributions \pm Profit/Loss\ Allocations - Distributions = Closing\ Capital. \]

The allocation percentages can change when performance conditions are satisfied.

Carry can therefore be embedded directly in the allocation of the partnership's economics.

It is not necessarily an external payment calculated after the accounting is complete.

89. Carry through shares

In a corporate structure, the carry holder may own:

• participating shares;
• growth shares;
• preference shares;
• founder shares;
• performance shares.

The economic rights of those shares can activate above a threshold.

The data relationship becomes:

\[ Carry\ Holder \rightarrow Share\ Class \rightarrow Rights \rightarrow Distribution/Value. \]

That differs fundamentally from:

\[ Carry\ Partner \rightarrow Profit\ Allocation \rightarrow Capital\ Account. \]

Same broad economic objective.

Different legal and accounting architecture.

90. Carry in a managed account

A managed account can also give the manager performance-based economics.

But there may be no commingled partnership in which the manager can simply hold a carried-interest partnership interest.

Performance participation could instead be implemented through:

• performance fee;
• interest in a dedicated partnership;
• shares in a dedicated company;
• incentive vehicle;
• contractual profit participation;
• another bespoke arrangement.

The managed-account discussion therefore brings us back to exactly the same principle:

\[ \boxed{\text{Economic Carry Comes First; Legal Implementation Comes Second}} \]

91. The legal route of carry is itself data

A carry database cannot safely contain only:

It may also need to know:

• carry recipient;
• legal capacity;
• legal instrument;
• governing document;
• hurdle;
• allocation mechanism;
• allocating/paying entity;
• ultimate participants.

For a partnership carry, the recipient may be an SLP and the mechanism a partnership profit allocation.

For a performance fee, the recipient may be the investment manager and the mechanism an invoice.

For share-based carry, the recipient may be a shareholder whose rights derive from a particular class.

These are not merely different labels for the same payment.

They are different legal events.

A Practical Structural Framework

92. The terminology map

A useful orientation is:

The table should be read horizontally.

A CV, SCSp, KG and Delaware LP may perform broadly comparable economic functions.

They remain different legal creatures.

93. Do not translate legal forms too literally

It is tempting to translate Commanditaire Vennootschap simply as Limited Partnership.

That can be useful conversationally.

It can be dangerous legally.

The same applies to KG, SCS, SCSp, S.a.s. and similar structures.

Translation tells us the broad family.

It does not determine:

• legal personality;
• liability;
• governance;
• transferability;
• capital rules;
• insolvency treatment;
• tax classification;
• regulatory status.

For those questions, local law matters.

94. Five questions make most structures understandable

Rather than memorising hundreds of entity names, ask five questions.

Question 1 — What is the legal wrapper?

Partnership?

Company?

Contractual fund?

Trust?

Hybrid?

Question 2 — What does the investor own?

Partnership interest?

Shares?

Units?

Beneficial interest?

Debt and equity?

Direct investments?

Question 3 — How is capital funded?

Commitment and drawdown?

Fully paid subscription?

Partly paid shares?

Loans?

Repeated subscriptions?

Question 4 — Who controls the assets?

GP?

Board?

AIFM?

Investment manager?

Trustee?

Management company?

Question 5 — How does value flow?

Allocation?

Distribution?

Dividend?

Redemption?

Interest?

Carry allocation?

Special-share participation?

Performance fee?

Once these five questions are answered, most structures become conceptually understandable.

The Structural Principle

95. Structure determines ownership

We can now express the relationship more systematically:

\[ \boxed{ Structure \rightarrow Ownership \rightarrow Accounting \rightarrow Data \rightarrow Economics \rightarrow Tax } \]

Each stage influences the next.

The legal structure determines what rights exist.

Those rights determine what the investor owns.

Ownership determines how activity is accounted for.

Accounting determines what data needs to be maintained.

The data allows the economics to be reconstructed.

And the legal route through which income, gains and performance participation arise can influence tax character.

Fund structure is therefore simultaneously:

• a legal question;
• an ownership question;
• an accounting question;
• a data question;
• an economic question;
• a tax question.

96. One economic model, many legal languages

This is ultimately the central lesson.

Private equity is an economic activity.

It is not an entity type.

The same broad relationship can be expressed through:

\[ \text{Limited Partners + General Partner} \]

or:

\[ \text{Shareholders + Investment Company} \]

or:

\[ \text{Unitholders + Contractual Fund} \]

or:

\[ \text{Beneficiaries + Trust} \]

or:

\[ \text{Investor + Mandate + Directly Owned Assets} \]

or through a network combining several of them.

The terminology changes.

The legal rights change.

The accounting changes.

The data changes.

The tax consequences can change.

The regulatory consequences can change.

But the fundamental economic questions remain remarkably stable:

Who contributes the capital?

Who controls its investment?

Who bears the risk?

Who owns the resulting value?

How is that value allocated?

How does the manager participate in successful performance?

97. Why this matters for The Carried Interest Bible

If every private equity fund were a conventional Limited Partnership, carried-interest administration would already be complicated.

But private equity is not structurally uniform.

Carry can sit inside:

• partnership waterfalls;
• special limited-partner interests;
• carry partnerships;
• corporate share rights;
• employee partnerships;
• contractual participation arrangements;
• growth-share structures;
• managed-account performance arrangements;
• co-investment structures;
• combinations of these.

Meanwhile the investment programme itself may contain:

• feeders;
• master funds;
• parallel funds;
• AIVs;
• blockers;
• HoldCos;
• BidCos;
• SPVs;
• co-investment vehicles;
• continuation vehicles;
• multiple jurisdictions.

A carried-interest calculation therefore cannot safely begin with:

\[ Carry=20\%. \]

Nor can it begin with the assumption:

“Every investor is an LP and every fund is an LP.”

It must begin one level higher.

We first need to know:

Who has the economic entitlement?

What legal instrument creates that entitlement?

Which entity generates the underlying performance?

Which economic perimeter does the performance calculation cover?

Which entity allocates or pays the carry?

Is the recipient acting as a partner, shareholder, manager, employee or another participant?

Is the resulting amount a profit allocation, distribution, dividend, fee or another form of economic participation?

Which accounting records represent the entitlement?

Which cash flows and allocations feed the calculation?

Only then can the economics of the carried-interest arrangement be translated reliably into data and calculation logic.

The complete relationship can therefore be expressed as:

\[ \boxed{ Legal\ Structure \rightarrow Ownership \rightarrow Accounting \rightarrow Data \rightarrow Economics \rightarrow Tax \rightarrow Carried\ Interest } \]

That is why understanding private equity structures is not merely preliminary legal knowledge.

It is part of the foundation on which fund accounting, investor accounting, performance measurement, data architecture and carried-interest calculation are built.

And it explains why two private equity arrangements that appear economically almost identical can require entirely different accounting systems, data structures and carry processes once we look beneath the surface.

The legal structure tells us where the rights exist.

The accounting tells us what has been recorded.

The economic structure tells us what those rights and transactions mean.

And carried interest requires us to understand all three.

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