What's the difference between gross and net returns?
A core Private Equity interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Gross returns are before management fees and carried interest. Net returns are what LPs actually receive. A fund showing 25% gross IRR might deliver 18-20% net IRR after 2% management fee and 20% carry. Always ask: 'Is that gross or net?' The difference is the GP's compensation.
WHAT INTERVIEWERS LISTEN FOR
- ✓Gross vs net returns
- ✓Management fees and carry
- ✓LP actual returns
- ✓GP compensation impact
- ✓Always clarify gross or net
COMMON MISTAKES
- ✗Confusing gross with net
- ✗Ignoring fee impact
- ✗Assuming gross equals net
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