First off, it's been some time since I visited WSO, but wanted to thank the site and its community for providing a great platform to help me break into banking 5 years ago!
Anyways, I've recently received a Pre-MBA Associate offer from a first time fund (~$100M, 3 partners and 1 Sr. Associate).:
Base: $70K
Bonus: 50% of base
Carried Interest: 1% of GP allocation
What do you guys think? It seems most funds provide $100K+ base, with 100% bonus, but the difference here is the value of the carried interest, which is rare at the Pre-MBA level. Any advice would be greatly appreciated.
My profile:
Years of experience: 5
Current comp: ~$200K
So your break even is $9.5MM GP allocation? Feels like really a high hurdle since it's a new fund, but I am not as familiar as others.
If you are solving "break even" to $200k, then you need $9.5mm GP allocation per year, which is much different than $9.5mm GP allocation overall
Curious how you came up with the breakeven?
Assuming a 3x return on $100M, the fund profit would be $200M (after $100M is returned). 20% of $200M goes to GPs ($40M). My share would be 1% of the $40M ($400K)
The issue is that WSO posters use "MM fund" for pretty much everything other than the 10 or so megafunds. There is a pretty wide gap between the likes of Madison Dearborn and a new fund under $500M.
When you say 1% of GP allocation you mean 1% of the 20% (assuming 2/20)? If yes, your compensation is very small but keep in mind that a $100M fund is also very small. From what I have seen $200K is usually what you start getting at a $1B fund.
Good point. I realize there is a significant comp disparity between a new fund, MM and $1B+.
To answer your question, yes, it would be 1% of the 20%. From a cash perspective, I feel like I need to get up to $130Kish (in addition to the carry). Thoughts?
Big question is: over how many years do you expect to need to be employed to get the, in your example, $400k. If you deploy and divest the fund in 10 years, it is $40k/year in accrued carried interest. If it takes 13 years, its only $30/year etc...
why is this mm
mm is short for million. M being the Roman Numeral for 1,000. mm (short for MM, which is short for MM or 10001000)
carry is great, but you're also at the mercy of the partners to realize it, since, realistically, you will be long gone as a pre-MBA associate before it starts getting distributed. The cash comp is low. Personally, at the pre-MBA level, I'd rather have the cash (can't pay for b-school with unrealized carry).
You should consult the WSO compensation survey for comps in the segment of the market.
I think it comes down to how badly you want to work in PE and whether the probable cut in comp and time is worth it to get the experience, as well as how likely other opportunities are to come your way.
I would certainly try to negotiate a better package (e.g. 80-100% bonus while keeping everything else the same). This is somewhat building on the thoughts of the poster above but if the partners do not budge, maybe you can at least suggest substituting carry for cash compensation (using "reasonable" carry assumptions, e.g. if your fund actually targets the 3X you used in your example, you should suggest that). I can see how you are concerned about taking a 50% hit and you should definitely make the partners at your fund aware of that.
Have a look at this thread, OP: http://www.wallstreetoasis.com/forums/comp-for-pre-mba-pe-associate-500…
Might be helpful.
Realize this is pre-MBA role, but do they expect you to leave after 2 years? Also agree with everyone saying your comp is low.
Yep, this would be a 2 year role
3x on a fund is not easy these days...
exactly... real returns are much lower than people think
You know that your comp is low but you might as well not even consider the carry because it won't be realized for years and with clawbacks/escrowing it until investors get it all back (see American vs. Euro style carry, with things moving towards Euro especially in a new fund where they wouldn't have as much leverage with investors) I wouldn't count on seeing anything for at least 5 or 7 years. Ask if there are other fees like acquisition or debt fees that you could tap into on a similar basis as the carry. Doubt it but you never know.
Also consider that you are going to get worked to death at this job and it's not coming with a brand name or much money. There are 3 partners, you, another sr. associate (?) and $100MM of dry powder. The partners are going to want to put that to work as soon as humanly possible to show acquisitions and exits asap so that they can get to raising fund 2 and they probably have an already in place pipeline that they needed to show to raise the capital. If there's two of you (or one if I'm mistaken) you are running really lean to process those deals. Really lean. You will be swamped without many resources. Then the target companies are going to be smaller and while this may seem counter intuitive, smaller companies are often more difficult because they're private sellers and so many things in finance and legal can be so royally fucked up that an acquisition and debt financing can be really complicated and take a lot of time. A $250 or $500MM company is likely to have things buttoned up to a good degree and run closer to how a public company operates because its commercial and corporate banking should be done by an institutional group so it's gone through diligence processes before and have to do pretty standard financial reporting for them. But a $25-50MM company is, for example, more likely to do their accounting based entirely on the owner paying as little as possible in taxes and not much else. It could be a great company but the due diligence can be excruciating, and that will be on your shoulders which means you'll be working a ton to unfuck things.
Don't mean to shit on your offer, congrats, just a few thoughts.
I generally agree with the previous responses. Getting a 3x on a fund is no trivial matter. Very few funds achieve this even on a gross basis and it takes YEARS to collect the carry dollars as a GP. Unless you have high conviction on the team and their ability to establish franchise value, raise multiple funds and have a path to becoming a partner, I wouldn't take this opportunity. A two year role does not seem ideal from my perspective.
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