Understanding carry
Currently at the late stages of a recruitment process for a small European fund. I’ve been at a long only pension fund for half a decade since I graduated, not made much money. Very simple base + 30% bonus. Had discussions with the recruiter about the carry, about 1.5mn bucket split amongst an analyst pool of 4-5. Access to the carry kicks in after the first year.
I’ll be honest I’ve taken the job because of their investment style, the base + bonus is already a step up for me so I didn’t really pay much attention to it.
I’d appreciate any insight on industry standards here in London
Based on the most helpful WSO content, here's what you need to know about carry and industry standards in your situation:
Carry Pool and Allocation: A £1.5 million carry pool split among 4-5 analysts is a reasonable setup for a smaller European fund. This means your share of the carry could range from 20% to 25% of the pool, depending on how evenly it is distributed. For context, carry allocations at junior levels in smaller funds are often more generous compared to larger funds, as smaller funds typically offer lower cash compensation.
Timing of Carry: Access to carry kicking in after the first year is fairly standard. However, keep in mind that carry payouts are tied to fund performance and liquidity events, which can take years to materialize. For example, carry distributions often start around year 6 of a fund's lifecycle, once the "J-curve" effect has been worked through and exits begin to generate returns.
Vesting and Clawbacks: Carry typically vests over a multi-year period (e.g., 3-5 years) and may include clawback provisions. This means you might need to stay with the firm for a significant period to fully realize your carry, and there could be adjustments if the fund underperforms or faces losses.
Focus on Carry Dollars: Instead of focusing solely on the percentage of carry, consider the "carry dollars at work." For instance, if the fund achieves a 2x return on a £100 million fund, the carry pool would be £20 million (assuming a 20% carry rate). Your share of the £1.5 million analyst pool would then translate into a meaningful payout, but only if the fund performs well.
London Market Standards: In London, carry for junior professionals is less common at larger funds but more prevalent at smaller funds. Smaller funds often use carry as a retention tool and to compensate for lower base salaries. The fact that your base + bonus is already a step up is a positive sign, and the carry is a valuable long-term incentive.
Key Considerations:
In summary, while carry is a long-term incentive and may not provide immediate financial benefits, it can be highly lucrative if the fund performs well. Given your step up in base + bonus and the fund's investment style aligning with your interests, this opportunity seems like a solid move. Just ensure you have a clear understanding of the carry mechanics and expectations.
Sources: Confused about carry at PE Fund, Carried interest for Associates / Senior Associates?, EB VP Comp vs PE VP Comp, Carry in REPE
that just sounds like a discretionary bonus pool
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