Firm Carry Pool
Hi guys - I recently accepted an offer as VP at an MF. I was told that I will receive carry via the broader firm carry pool (I’m in IR in a direct capital raising capacity).
Is anyone else in their firms “carry pool” and can explain how it works relative to earning traditional carry?
Based on the most helpful WSO content, the concept of a "firm carry pool" typically refers to a shared pool of carried interest allocated to employees of the firm, which can include those in roles not directly involved in deal-making, such as Investor Relations (IR). Here's how it generally works compared to traditional carry:
Traditional Carry: In a private equity setting, carried interest ("carry") is a share of the profits generated by the fund that is distributed to the fund's management team. This is usually a reward for enhancing the value of the investments and is typically allocated to those directly involved in sourcing, executing, and managing investments. The amount of carry an individual receives is often directly tied to their involvement in successful deals.
Firm Carry Pool: For roles not directly involved in the investment process, such as IR, some firms offer participation in a firm-wide carry pool. This means that a portion of the overall carried interest generated by the fund is set aside to be distributed among a broader group of employees. This can include professionals in IR, operations, legal, and other support roles.
Allocation: The allocation of carry from the firm carry pool is usually based on seniority, contribution to the firm's overall success, and other factors determined by the firm's management. It might not directly correlate with the success of individual deals, as is the case with traditional carry.
Purpose: The rationale behind a firm carry pool is to align the interests of all employees with the success of the firm, encouraging a collaborative effort towards the firm's goals. It recognizes the value that professionals in non-investment roles bring to the table in terms of capital raising, investor relations, and overall firm operations.
Variability: The specifics of how a firm carry pool is structured and distributed can vary widely from one firm to another. Factors such as the size of the pool, the criteria for allocation, and the timing of distributions are typically defined by the firm's partnership agreement or compensation policy.
In summary, being part of a firm carry pool as a VP in IR means you'll participate in the financial success of the firm through a shared interest in the profits generated, even though your role is not directly involved in making investment decisions. This is a way to incentivize and reward the broader team that contributes to the firm's success.
Sources: Confused about carry at PE Fund, Actually Realizing Carry, Carry in REPE, How does MF Carry work?
Carlyle? It’s a shitty structure but better than nothing I guess.
Thoughts on Carlyle?
Carlyle or their carry program?
I was thinking about Carlyle but would be interested in hearing your thoughts on both.
Carlyle IR is a mess. They offer a carried interest program broadly to non-IPs which comes out of the carry allocated to the house (not directly from the fund). It is a vintage year program so if you participate you will get an allocation associated with deals signed up the prior year. When carry proceeds are realized from those deals you are paid out your prorata allocation once a year in Q2. No vest. So it either pays out and you’re there or you forfeit it by leaving.
This really helpful, thank you! What is the average payout upon the carry allocation hitting? Also how long from your first carry award to it actually hitting, on average? 4-6 years?
They give allocations in dollar amounts based on a 2x return. At the VP level you’re getting like 25-75k in the program a year. Or nothing if you suck/your team sucks. When they pitch it, since it’s driven by deal activity across a range of funds/assets, they tell you it can pay out sooner than carry locked up behind a European waterfall which is technically true. The earliest I’ve seen anyone get paid out is 3 years after the allocation year and it’s usually small with more meaningful proceeds paying out in years 4-7.
No vesting is awful
Doesn’t the KKR carry pool operate in a similar way?
I’ve heard this too, I believe it doesn’t really matter which investing group you work under as seniors all get similar carry, part of the “one firm” culture and one carry pool. I’ve heard even investor relations / fundraising roles get carry from this pool, although I don’t know how true that is.
Yes it does and can be quite frustrating as it doesn’t incentivise individual/team performance as much as other arrangements
Believe KKR does weight the carry more heavily towards your strategy (e.g., North America PE), but it is a broader firm carry pool
Almost all the MF now structure their carry pools like this. Granted for the following year at the end of the current year. Will grant as a $ grant that they value it at, assumes a $ deployed in the year ahead and target return. Upside/downside driven by how active of a deployment year it was and the actual end result of said investments. They headline $s are usually aggressive and you need to handicap meaningfully based on a more realistic outcome.
What’s the typical vesting period for carry at MF?
Is it tiered timing schedule (Y4: 10%, Y5: 20%, etc) or more cliff?
Carlyle doesn’t vest.
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