Fund Economics, Incentives, and Governance

A fund agreement defines how capital will be invested, how proceeds will be distributed, and who may make decisions when interests diverge. It is the economic constitution of the partnership. Reading it requires more than recognizing a management fee and a carried-interest percentage.

An investor commits a maximum amount and supplies cash when the manager issues capital calls under the agreement. Calls may fund investments, fees, expenses, or other permitted uses. Distributions may return capital or represent investment gains. Recycling provisions can allow some proceeds to be reinvested. The amount committed, the amount contributed, and the amount currently invested are therefore different quantities.