Getting Carry when you Join in the middle of a fund
This might be a stupid question but, assuming you were to join at a level of seniority where carry is given, if you joined a private equity firm that was in the process of investing out of its most recent fund and based on deployments, likely wouldn't raise another fund for a few years, how would carry work for you?
Would it be retroactive to the fund's inception?
Would it only cover returns on capital deployed after your start date?
Would you not get carry in the current fund and have to wait until the next fund?
If you're getting carry on the fund that wasn't originally allocated to you, then I'd think by definition, you'd be diluting your coworkers
Typically it’s carry from that point out - if you get 1% and the fund is 50% deployed, then you effectively have 50bps (also depends on whether the carry pool is American-style or European-style)
That's helpful. This might be too inside baseball, but do you think it would just be if you join when 50% of capital is already deployed, your carry on the fund reflects half of what you're pro rata share would have been had you been there since the beginning. Or let's say one of the investments that came out of that first 50% was a total home run and contributes an outsized portion of the fund's total IRR. Would the calculation be so granular as to exclude you from carry on that investment (and other investments that came out of first 50% of capital) or would it just be a simple pro rating of the total carry for the amount of time you've been with the fund / capital deployment.
Yes you are right, any carry they allocate has to come from the existing pool. However, not all of that carry may be allocated and some is reserved for outperformers or hires during the fund.
Could you elaborate on European vs American style carry? Thanks.
European waterfall is where the distributions from exits are used to return the committed capital first before GP receives any carry.
American waterfall is where the GP receives carry on a deal by deal basis assuming the hurdle rate is met.
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