In terms of American private capital investors, the U.S. based industry is broadly comparable around the world. The typical private equity structure is 2/20, which means that the fund is structured as a 10 year partnership. The committed capital is provided by an institutional investor such as the Harvard Endowment. The fund managers draw down a 2% fee (used to keep the lights on) and are expected to obtain a 20+% gain over the threshold. In light of the Great Recession, the fee structure has been under much debate.
U.S. funds are able to leverage their U.S. industry experience to help Canadian companies expand their business footprint and help launch them into a market close to home before tackling the worldwide stage. Through an American fund’s U.S. pedigree, a fund can leverage their experience in the American markets to pick out the consumer market nuances and help Canadian businesses expand south of the border.
Many Canadians currently reside in the U.S. as professionals in the private equity industry. With Canadians on the inside of the U.S. based PE funds, there is a natural orientation to help out fellow Canadians and their companies by bringing capital to Canada. However, business owners beware; funds in Boston or Chicago are probably more likely to invest than funds in Houston and cultural fit is a factor that cannot be overlooked.
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