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How would you rate this PE offer?
 

randomguy's picture
O
(Baboon, 118
 
Points)
 on 6/18/12 at 10:25am

Girl friend's got a PE Offer - She's a BB associate in Asia with an Asian MBA and about 4 years of experience (she joined as senior analyst post MBA).

Offer is from a global growth PE fund (think Summit/Sequoia and the likes). No carry and total comp is around $250K. She'll probably become principal equivalent in 3 years time when she can get carry etc.

Is that in line with market comp?

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PZ87's picture

I'm not experienced in growth

PE
 
Points)
 on 6/18/12 at 12:30pm

I'm not experienced in growth equity but I have seen lots of people with 4-5 years banking/MBB experience join LBO funds at the Associate level (i.e. pre-MBA). Even some funds recruit bankers/consultants with HBS/Wharton MBAs at the Associate level if they have no PE experience. So all in all, doesn't seem massively surprising that her comp would be equivalent to MF/MM PE Associate level.

However that is based on Eur/US comp, if the position is in Asia, I have heard comp can be a bit lower there, so this may be slightly above pre-mba Associates level for the region.

re-ib-ny's picture

That comp is in line with a

PE
(Gorilla, 690
 
Points)
 on 6/18/12 at 4:46pm

That comp is in line with a pre-MBA associate at most US LBO funds. Considering that quality buyside opportunities are very rare for IBD associates, I would say this is a worthwhile offer.

The obsession with carry (exhibited by many private equity hopefuls) baffles me. It's like getting paid in stock options with no observable market value and a way out-of-the-money strike price (after all, the value of the fund assets need to rise materially for the GP's carried interest to be worth something). Total expected comp is what matters, and all else equal, I'd rather have more of that target comp paid in salary than annual bonus, and more annual bonus than carry.

PZ87's picture

I have to agree with the

PE
 
Points)
 on 6/18/12 at 5:38pm

I have to agree with the above to an extent. Carry is both uncertain and not available for 5-7 years. In the early stages of your career, your discount rate should be pretty high (i.e. money today is significantly more valuable than money in 5 years):

If you stay in PE, the money you get from your carry in the early years will be peanuts compared to your comp 5-7 years in . If you leave PE, having significant wealth tied up and unavailable while you are trying to change careers is a serious pain. Either way, there is a massive advantage to having cash in hand when you're young.

randomguy's picture

Thanks guys very helpful.

O
(Baboon, 118
 
Points)
 on 6/19/12 at 3:59am

Thanks guys very helpful. Actually BB comp in Asia is 'globalised' and the same as NYC somehow PE seems less so hence making the comp jump smaller than one would expect in the US.

Just so I understand how exactly does carry work? Iis it one big lumpsum amount when the fund closes or is it an annual figure based on some nominal (not actual) return calculation?

re-ib-ny's picture

Genuine carry means that you

PE
(Gorilla, 690
 
Points)
 on 6/19/12 at 10:49am

Genuine carry means that you contribute your pro rata share of contributions when there's a capital call from investors, and you get paid your pro rata share of distributions to investors. Historically, that meant you would get paid whenever there was a disposition, dividend recap, etc., of a portfolio company. Today, however, more sponsors are offering to cross-promote the deals and hold back part of the carry, so that early gains will be offset by later losses (which will result in more of a lump sum toward the back end).

Junior employees who get carry are often getting paid in "phantom carry." This is based on the quarterly reported value of shares in the fund. So if you are offered "$100,000 of phantom carry," you will get paid in cash for the implied appreciation of a $100,000 investment in the fund as of the prior quarter end when you joined until whenever you are entitled to be paid out (possibly annually, or sometimes in conjunction with a two year program, etc.).

Some funds also allow / require employees to invest in their specific deals, whereas others prefer to encourage investment in the overall fund.

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