A-What are the financial implications of the proposed changes for Warburg, Pincus? In particular, for what multiple (e.g., 3x or 4x or some other number) is the total compensation the same for the two different compensation schemes.

B-Continue the same assumptions about management fees and return of capital as above. Assume that the committed capital not needed for management fees is invested in equal annual installments over 4 years. Calculate the IRR of the fund in two different ways. First, consider as cash flows only payments into the fund when capital is called and distributions out of the fund valued at the date of distribution. Second, calculate IRR based on two cash flows: the amount of committed capital at the beginning and the amount of returned capital at the end. Before the committed capital is called and between the time of distribution and the end of the fund’s life, assume that the capital is invested at the risk-free rate of 5%. Without doing any spreadsheet calculations, can you use “numerical intuition” to guess what you might discover from specific calculations?

C-Thinking of carried interest as an option, how much is this option worth to Warburg if the carry is 15 or 20%? Does a change from 20%/1% to 15%/1.5% represent and increase or decrease in compensation to Warburg? 

(This question is answered one way in the paper by Metrick and Yasuda.)