Appeal of working for a publicly traded MF??

Why would one choose to work for a public MF (assuming long term career)? It seems like the same job as a private MF, yet in public MFs, half the carry pool goes out the door to shareholders. So it just seems like you're getting paid a lot less (in terms of carry) to do the exact same job. Think about it. Similar fund sizes ($20bn+), similar performance numbers (maybe an outlier like thoma bravo), yet a carry pool that is sliced in half for the public funds…

Are the senior public MF guys (principal+, the guys who actually get carry) paid more via higher quoted carry allocation or maybe options or cash comp? Probably not. Feel like Warburg or Thoma Bravo may be the highest paying shops in the long run.

Comments (30)

  • Intern in PE - LBOs
1y 

Bump

  • 1
  • Associate 2 in PE - LBOs
1y 

-

  • 1
  • Intern in IB-M&A
1y 

Pretty sure the OP's analysis isn't 100% accurate. At a BX/KKR, the founders, who could have taken 20-30% of the carry for themselves (i.e they own 20-30% of the firm) have instead chosen to sell that carry to public markets. So Steve Schwartzman might take a negligible portion of the carry pool, leaving 50% at BX for every employee who isn't Steve/John/other very senior guys. At Thoma Bravo, if the founders take ~50% of the carry directly, that still leaves ~50% for everyone who isn't a managing partner. Hence, same pay for the MD's, principal's, etc.. Plus, if I ran Thoma Bravo, and I chose how many bps of carry to give to my MD's, why would I give any more than I need to?

  • 2
  • Intern in IB-M&A
1y 

At the MF level, assuming $20bn+ fund sizes, what is standard carry allocation for MDs/partners and principals? Like 100bps and 50bps, respectively?

  • Intern in PE - LBOs
1y 

Sounds about right. 20bn raise, 2x MOIC, 2/20 fee struc: 100bps = 40mm and 50bps = 20mm which seems in-line with the MF figures quoted in the PE comp report. Thick chunk of carry, starting to think MFPE sounds better than HF haha, but after all it does take a while to payout.

  • Intern in PE - LBOs
1y 

75bps for a new partner and 40bps for a principal (using the same framework as above comments) yields $30mm and $16mm in carry, respectively. Those allocations seem a bit more reasonable, maybe the issue is the fund size (MFs seem to have crossed the $20bn threshold and are approaching $25-30). New partner would also have carry from old fund when they were a principal, so they would have 30 + 16 = $46mm carry dollar at work. And that will obviously go up by a greater amount for each future fund as the partner becomes a sr partner and get better economics

The above guy is correct, it is a very hypothetical number as it assumes 100% capital deployed and nice exits. Plus that $46mm may take 10 years to payout, but I don't think anyone's complaining

  • 1
1y 
Vænnen, what's your opinion? Comment below:

Carried interest for Thoma Bravo XV:

Managing Partner Total: 70% (Orlando Bravo 27%, Carl Thoma 3%, Seth Boro, Scott Crabill, Holden Spaht each 14%)

Other Professionals: 30%

  • 1
1y 
Vænnen, what's your opinion? Comment below:

Worked with them in the past.

They did not provide a split for the 30%, but I remember that carry starts at VP level.

1y 
zeroebitda, what's your opinion? Comment below:

I would say OP is right in some sense. If choosing between two identical companies except one is private and the other is public, I'd go with the private 9 times out of 10. Especially in the AM industry. It allows management to worry less about quarter to quarter results and more about scaling properly while maintaining firm culture. Comp also varies more/more upside for PMs/senior MDs. 

  • Principal in PE - LBOs
1y 

Lol. You think Jon Gray is running Bx to make the quarter to keep a bunch of shit eating Millennium HF analysts happy?

Be that as it may, private is better. Smaller firm, lower overhead, not turning into a monstrous institution, still a ridiculous expense policy, etc.

The other side of that coin is that there's only like 5 "top guy" jobs at a place like WP… vs the scale of a Bx, there's probably 20+ ridiculous jobs to be had there and as a public company they are constantly trying to grow, so a lot of latitude to launch a new strategy. Good luck trying to do that at WP or TB. The name of that game is don't rock the gravy train.

  • Intern in PE - LBOs
1y 

Always enjoy reading your comments and I see you're active now - had an unrelated question for you. How is carry allocated at MFs? When BX raises a new fund, do principals/MDs/SMDs get some contract saying how many bps they're getting - I'm assuming this isn't the case haha. Is it allocated on an individual performance basis, where if some partner takes the charge on one particular deal in the fund that was successful, he'll take home more than expected. Or is it a mix of seniority and GP commitment? Thanks!

  • 1
1y 
m8, what's your opinion? Comment below:

As far as I know (and this is how it works at my fund) the carry % is set at the final close. Your carry% is then tied to your GP commitment, so if you get 1%, and the GP commitment to the fund is $100M, you have a $1M commitment. 

Your individual performance of course goes into this, but its from previous work/deals, not on the current fund you're investing.

Don't forget its a zero sum game, and the guys entrenched at the top are not going to give anything up.

Most Helpful
  • Principal in PE - LBOs
1y 

It varies by firm, there's 3 models.

1. The framework the below poster suggested. You get allocated a slice out of the total fund when it closes. Your next allocation is when the next fund closes.

2. You get a carry allocation every year as part of your comp package. Your comp may be $300 base, $600-800 bonus and another $500-1000 in carry award that year. So ~1m cash comp, ~1.5-2.0m total comp in that year. That total comp should roughly double every 4-5 years until plateauing as a senior partner, with an outsized escalator in the carry piece and more muted growth in the cash piece over the long-term, which is what you want bc of the more favorable tax treatment. By the time you're a partner, should be getting $5-10m in carry annually. This is MF math and takes for granted you don't burn out, wash out, or get pushed out.

3. You get no meaningful headline carry, but get outsized carry on deals you're involved in. This is more common at smaller shop and family offices and VC and some sourcing heavy growth equity.

Most importantly, regardless of the carry payout model (it's mostly just "accounting" differences), the carry is worthless if fund performance is blah. So the trick is to go to a place like Bx or WP that has consistently strong but not stellar returns you can set your clock to, or go to an Apollo that has ups and downs a bit but they knock the cover off the ball every now and then and you get really rich in a hurry, or TB/H&F that consistently mint money. If you end up at an Apax or TPG, it's a bit of a crap shoot. Most of the outsized wealth creation (ie $50m) happens in the 2nd half of your carry-earning career. So if you were a VP/Principal with smaller carry dollars when the funds put up good #s, and are a partner accumulating a substantial 8-digit carry balance, but the funds end up dragging ass in those vintages… your shit out of luck and will have to live like a Park Ave pauper.

Lastly, many firms will also give you fee free co-invest and many have preferred arrangements with financial institutions to provide favorable leverage on your commitments - this can tend to move the needle quite a bit for the VPs/Principals who have a smaller capital account. I've seen co-invest leverage of 3-5x what you contribute. It's basically just free money.

  • Intern in IB-M&A
1y 

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