Curious what everyone thinks about the upcoming LP. I feel like it is too good to be true about uncapping the profits (I think they said this?). Meaning we can go about the fixed return. I might be wrong but it all seems too good to be true. Anyone have any insight as to what is actually happening or what this offer might be?
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@hk , you should be able to put down 20% and take a loan on the rest.
So 7.5% is guaranteed monthly for holders of the A shares, but historically, there has always also been "excess" earnings distribution in October and February on A shares. The total average return on A shares has historically been around 20% as a result.
I heard all excess returns for A shares are going away when they issue B shares, and that A shares will literally only get the 7.5% going forward and that's it. No more excess returns for A shares, i.e. it's dropping from 20% to 7.5% only. Is that true?
For LP that will not have the 7.5% guarantee. Are associates now required to pay all at once? Or if there is a loan option, will we now have an out of pocket monthly payment?
Could the new EJ Bank give interest free loans, or at least prime rate?
@cx It almost sounds like a pyramid scheme when you put it that way
They need to get the fixed 7.5% off the books to sell or IPO. They will get a much higher multiple without 7.5 guaranteed.
Always remember. When it looks like a GP is giving you more, there is always more in it for themselves
Uncapped profits yes, in theory. But in reality the profitability has been incredibly stable so your upside is only hypothetical.
For example, current shares offer 7,5% minimum + excess earnings and that roughly has equaled 21-23% in a steady state. The new shares will probably average around 23-25% (based on 50% of GP profits) but there is no downside protection. You don't have to be a genius to know that this is not a particularly attractive trade (i.e. the downside cap of 7.5% is worth more than few % points + upside in a company that is not experiencing exponential growth).
The reason for the new class is to be able to issue more LP. There are regulatory limits and challenges to issues tons of LP with explicit guarantees. Getting rid of 7.5% floor opens out a lot more issuance. My reading of this is that they need more LP for particularly higher grade non GPs and top performers throughout the firm. The talent wars are only getting worse and the reality is that most non GPs currently have very little retaining incentives.
@OP Why add a completely new LP? Why not just pay above the 20% currently paid on the original LP and offer it to additional individuals. Think about it. When is the last time Jones elites actually did anything positive for associates (future or past). There is something in the “A” lp agreement elites do not like or that is not beneficial to them. Do not trust any of it until you have a lawyer review the old “A” agreement versus the new “B” agreement. Has it been approved by the SEC?
@b1 they'll run a couple of times where A units pay 7.5%, abd B's pay more than 10%. Then, when most have shifted to B units, they'll offer a billion $ of B's (probably in a public offering), and the dividend will drop to 2-3%. Holders of A's will be hapoy, and holders of B's will be crying. And the GP's will laugh all the way to the bank when they sell their hundred thousand B units...
Probably a catch to it judging how these monsters have handled everything so far. They hate us, you really think they want to share $ with us?