A Clawback means the Limited Partner (LP) requires the General Partner (GP) to return capital in excess of the performance fees that the GP deserves
A GP collects more performance fees than is deserved, when
- The performance fee is collected on a deal by deal basis, i.e. American Waterfall
- The private equity fund succeeds on early exits but loses on later investments
- the overall performance fees that the GP deserves is lower then the performance fees that it has collected
Potential issues with the clawback, where individual GP may have
- Left the firm
- Spent the money
- Gone bankrupt
- Passed away