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The premise behind any business partnership seems obvious: Build a structure and set of rules around performance and profits that not only create agreed upon fairness, but more importantly, position the partnership for long-term success.
That seems simple enough. But a new study indicates that many private equity partnerships have institutionalized economic gaps – intergenerational conflicts around who gets how much of the profits – that not only threaten their own stability, but also may raise serious questions for global managers who invest in them.
Why does this gap exist? How real is the problem? And what lessons might exist for other types of business partnerships?
Dr. Josh Lerner is Chair of the Entrepreneurial Management Unit and the Schiff Professor of Investment Banking at Harvard Business School. He also serves as Vice-chair of the World Economic Forum’s Global Agenda Council on the Future of Investing and Director of the Private Capital Research Institute, a nonprofit devoted to encouraging access to data and research about venture capital and private equity. Lerner was named one of the 100 most influential people in private equity over the past decade and one of the ten most influential academics in the institutional investing world. His latest paper is “Pay Now or Pay Later?: The Economics within the Private Equity Partnership.”