*URGENT* Typical PE Compensation (Specifically, % of carried interest)

How can this be urgent when you're asking for carry comp across the board. Do you have exploding offers at every level?

Doing research for an MD at my firm. Didn't care to tell me why he needs it:)

Because he's looking to jump ship. Depends, firm by firm, obviously.

This is actually an interesting topic where there's not much publicly-available data. Like GameTheory said, it depends firm by firm - largely becuase of size of fund and number of people. A lot more mouths to feed at the big shops but small carry % goes a long way when based on billions.

But what do you think the typical breakout is like per aggregate level? 70% partner level, 15% principal, 10% VP, 5% Senior Associate? Just a swag. What do you guys think(know)?

According to Blackstone's S1 their Senior MD's were paid about 7% of the total carry in 2006.

Works out to about .13% with 57 SMD's. Curious if this is similar to other large PE funds.

I haven't taken the time to check that S1, but that doesn't make sense - where is the other 93% going?

to Steve and Peter

that's not right. You're misreading the S1.

I might be misreading it. Analysis was from Bankers Ball:

http://www.bankersball.com/2007/03/26/blackstone-filing-details-on-comp/

In Part II of the analysis, "Carry Plan Participations to our SMD's was $160,000,000.

Divided 160,000,000 by the 2 billion in Carry Dollars Created = about 7%. Where am I going wrong? Is Carry Plan Participations not equivalent to the amount of carry the SMD's recieved in comp?

Hah Steve wishes!

I can't get into the specifics because it's sensitive info but if you wanted to get a better view read through the compensation section. To highlight some key parts are:

Footnote to $160: "We expect to make aggregate annual performance compensation payments to the senior managing directors that work in each of our businesses that range from 30% to 40% of the revenues of the relevant business."

Definition: Carry Dollars Created is calculated by multiplying the aggregate amount of Limited Partner capital invested by the carry funds in transactions during a given period by the contractual percentage (generally 20%) of the profits that we earn as a preferred allocation of income (a carried interest) from these investments, assuming we achieve specified cumulative investment returns.

Thanks Ivey.

So 30% to 40% of the revenues, ie 30 to 40 % of the 20% return, would be about 7% of the total fund's size, if I'm reading correctly.

IE if BX has a 100MM fund, with a 20% return, after y1 the SMD's are paid 8.4MM, or 7% of 120M, on average.

Correct?

Disregard, math was wrong.

30-40% of the 20% performance fee on the fund's return. So on a 100M fund, after 1y, 20M would be the return. 20% of that would be 4M, and BX partners would receive 30-40% of 4M.

Moony, you're confusing the "carry" and "fund size." In your hypothetical 100mm fund, 20mm (assuming IRR hurdles are passed) is the excess so the carry is 20% of the 20mm, and 30-40% of the carry would belong to the senior partners. Nobody really looks at carry as % of fund size, though.

One should note that the exerpt above mentions only GP carry from LP commitments. GP co-invest was not mentioned, and while I personally have not trolled through the S-1 I doubt GP co-invest has to be publicly reported and is housed under a separate LLC, anyways. So it'd be very difficult to know exactly how much per investment partners are really earning.

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Game is on the ball.

Just FYI the GP co-investment is 1:1 with the common units if funded off the balance sheet (it is distributed pro-rata to all unit holders) and you'll see that listed as "other investment income" in the earnings report.

If funded by the professionals then you receive returns like an LP with a simliar waterfall. (modified slightly)

Won't get into specifics on how that breaks out since it's non public information, but the most PE partners are so to speak, obligated to keep a substantial portion of their net wealth in the fund such they really work to maximize returns.

GP co-invest has higher returns than LP returns. You're getting gross IRR, not net.

I can't comment specifically on a specific fund. But generally in terms of compensation you still keep your carry dollars earned on the GP commitment because otherwise greater GP commit would dillute SMD comp and result in you managing that money for "free." It's not really important whether techncially they are "charged" or "not charged" in the LPA.

But the portion funded directly by professionals (e.g. SMDs) is not subject to the same waterfall as the general balance sheet commitment to encourage greater co-invest and allignment. It'd just suck to charge the professionals since that means every dollar you make is redistributed across a large shareholder base.

I think we're talking about the same thing. GP Co-invest (at least at our fund) is what you describe in your second paragraph.