NICE work if you can get it. The general partners who manage private-equity funds are lavishly paid. They receive an annual management fee, usually 1.5-2.5% of the fund's assets, and also get a share of any profits made from the fund's investments after the initial capital has been repaid to limited partners, a payment known as the “carried interest”. This is usually 20% of net profit, although some firms, particularly venture capitalists, set their “carry” as high as 30%.

As if that were not enough, some private-equity firms levy charges for things such as monitoring the firms in a fund's portfolio, ending the monitoring arrangement when the firm is sold, and even for providing some of the investment-banking services involved in buying or selling firms in the portfolio.

In the early private-equity funds, in America at least, the carry was taken on each deal that made a profit, not on the aggregate performance of a fund. So, as long as some individual deals were profitable, general partners could collect a carry even if the fund lost money overall. From the late 1980s, under pressure from limited partners, funds started to calculate the carry on aggregate profits—though some firms, including KKR, were slow to embrace this new norm.

In practice, American private-equity firms have often taken their carry each time a deal is profitably concluded—with the proviso that if the fund turns out not to be profitable overall, limited partners can claw back these payments. In Europe, general partners do not usually receive any carry until a fund has repaid all of the capital invested by its limited partners. Lately, private-equity general partners have become jealous of hedge-fund managers, who also have a “2-and-20” reward structure, but typically get their carry at the end of every year.

Intriguingly, private-equity firms have rarely tried to compete for capital by lowering their take, perhaps because investors might interpret it as showing a lack of confidence. Warburg Pincus cut its carried interest in the early 1990s, but no one followed suit. Barry Wolf, a private-equity lawyer at Weil, Gotshal & Manges, says that when the tech bubble burst, many people expected investors to put pressure on the payment terms of new funds. But instead of attacking terms, they took an all-or-nothing approach to investing in new funds: those raised by firms with a generally good record got oversubscribed, bad performers got nothing.

If it gets harder to make profits by investing, private-equity firms will probably try to earn bigger management fees by raising ever larger funds at more frequent intervals. Jon Moulton of Alchemy, a British private-equity firm, is puzzled: “A lot of people in the industry already make several million a year without having to perform. I can't understand why investors haven't put more pressure on fees.”

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