LMM Principal Compensation
Friend of mine has an offer from a MM PE fund as a principal and wanted to get everyone’s take on it here (wasn’t letting him post). Got 8 years of experience and in 2nd tier city
750mm 3rd fund. 400k cash + 100bps of carry (out of 100, not the 20)
That feels really light to me. I'd expect at minimum $600K cash and carry worth ~$5M+ over the life of the fund, so like 4 percentage points of carry.
He said carry out of the 100, so isn’t that 1% of 750M assuming 2x? 7.5M assuming that first 2 funds did well seems like a pretty nice offer
I'm assuming that when he says "100 bps of the 100" means "I will receive 1% of 100% of the carry allocated to the GP" and was clarifying that it wasn't "1% of the 20%".
Here's my math, so correct me where I'm wrong:
750M fund, doubled and capital returned, 750 left over for GP and LPs.
Assume 80/20 split, that means $150M to the GPs.
100bps of $150M is $1.5M.
Again, could be completely misunderstanding the situation--if it's 1% of the 750M, then yeah, 7.5M.
Agreed feels light. The 100bps is 1.5mm in carry assuming a 2x.
Is 600k cash really market in a second tier city at this LMM level? Friend is going to push back hard on carry. Should be in the 3-5mm range.
Cash comp would be more around 500, maybe 600 for a T2 city. Carry would be more around 3-5% instead of 1% of the total pool.
My fund is 300mm and I get 10% of the total carry pool and around 350k cash.
Your own references, are those for VP/Principal level? Ie how many years of experience?
Thanks. This is helpful. How many years of experience do you have in IB/PE?
This feels very light. Senior associate carry at my fund (~$350M, Texas) is 214bps so $1.5M assuming a 2.0x on the fund, so effectively what your friend is getting assuming he has 100bps of carry out of the 20% pool. Principals are double that from what I've gathered ($3.0M DAW, 430bps). No cash comp figures on the principal level but senior associate is ~$300k for us fwiw.
How many yrs of experience (PE only) is Principal at your shop?
We're small so super variable. One has 4 years of PE experience while another has 7.
That’s comparable to what I make as a VP1 at a fund that size with 5 years of experience. Does he get summers off or something?
Guys, it's LMM. Pay isn't as standardized.
Cash is too low should be 500 range. Carry is absurdly low should be 5-6x that
Depends on team size, track record, etc. - from EU benchmarking, should be at least 200 points instead of 100, but with 7-8 years experience more likely to push 300 points. If you have a small team/good economics it can be more than that. Should be $2.5-5m at work backcalculating based on historic track + equity pipeline.
Your friend ought to ask about starting carry and how this builds (doesn't really matter what you start with if there's step-ups in the first 2-3 years).
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