18. Suppose limited partnership agreements (LPAs) that have a life of 10 years contain the clawback provision. Consider a general partner (GP) who raised a $100 million fund and made ten investments of $10 million each. Two investments liquidate early, for $50 million each, while the other eight stay in the portfolio and are valued at cost. Assume that this fund employed a standard 8020 percent split of capital gains between the limited partners (LPs) and GPs and followed the rule that distributions were divided between the GPs and LPs from inception and typical management fees are agreed to be 2 percent. When the first two investments were liquidated, the $20 million of invested capital was returned directly to the LPs. Of the $80 million in capital gains, $64 million (80 percent) went to the LPs and $16 million (20 percent) to the GPs. These gains are paid out as the first two investments were exited, rather than after the fund reaches the end of its contractual life. If the ultimate value realized from the remaining portfolio is only $40 million (i.e., 50 cents for each dollar invested), how much should GPs repay the LPs, net of any taxes? Assume that there is no hurdle rate, and no other complicate clawback clauses. Also, assume that GP did not invest in this deal for simplicity.

1. $40 million
2. $32 million
3. $16 million
4. $ 8 million
5. None of the above