AUM per IP correlation with compensation
Have an offer with a distressed debt HF with around 200-350mm AUM per investment professional soon, and am curios whether or not the comp I’m getting is fair. I have 2 YOE in UMM PE after going to a target, and the HF has given me 125 base with an minimum bonus in first year of 50% (unspecified upside, though I hear it’s usually around 75%-100%), and carry is set to kick in starting in the next full year (so 2024). Not sure how much carry this will be, but I wanted to ask the forum if this compensation structure seemed fair given the AUM:IP ratio. Thanks!
Generally AUM/IP is correlated to comp but doesn't seem like it is in this case. 125k base in today's world is unheard of (assuming you're in NYC) and even tougher to justify if they have a $250mm+/IP ratio.
I think comp is on the lower side but makes sense since distressed PMs like to be cheap.
Try to figure out why and how often people have left in the past.
Yeah I agree comp definitely is on the lower side especially if you have 2 years of UMM PE buyside experience out of school coming into this. This comp is well below Investment banking associates at EBs after 2 YOE. I would think market would be closer to $350k. That was my offer from 2 years of banking (not PE). You should use your UMM PE year 3 comp to negotiate as that will certainly be higher than the package you have been offered. Also think about the carry and how much that would be worth. You specify distressed debt "HF" so is it like 50% liquid/50% drawdown or what is the AUM structure and size of the drawdown fund and vesting period etc.
Y1 comp is below market which is a red flag. I recommend calling former employees before accepting this job offer.
OP here, thanks for the comments. I also thought 125 base was a bit low, though they emphasized that carry was performance dependent and “had no hard limits.” Talked with other people at the fund and they said to expect around 250-300k Y1, and then if I manage to stay, it’ll scale pretty quickly from there. Does that seem more reasonable? Also, what would you guys think is a more reasonable base for someone of my background? I’m set to make 180k base in PE but I think that’s too high to expect
If you manage to stay? Is turnover that high?
Market comp for a $2.5B HF with 10 IPs is ~175k base 175k bonus for year 1. Maybe 150k base 200k bonus. You shouldn’t be taking a pay cut from PE imo.
I think distressed debt might have a tighter range of outcomes on total comp. I did 2-3 years at UMM / MF PE and landed at at fund with 5-10 IP / $3B+ AUM and expectations for first full year is $500-600K. They don’t comp you on experience in public markets (whether credit or equity), but they may what your comp could have been if you stayed in PE (i.e., comp ranges of post-MBA position in PE). I think you’re getting underpaid.
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