Blue Owl - No Carry
Just heard Marc Lipschultz say on a podcast that Blue Owl has a differentiated comp model and doesn't offer any carry to its employees. If that's the case, how does it attract and retain talent compared to competitors that do? Higher base / cash bonus? Stock?
Can't comment on Blue Owl but Coatue doesn't offer any carry and they make up for it with insane cash comp (both bonus and base are far higher than MFs for equivalent titles). Would imagine that Blue Owl is doing something similar (whether that takes the shape of cash or stock idk though).
Curious what the cash comp is for Coatue at the various levels? And which strategy are you talking about?
Blue owl doesn’t pay “insane” cash comp whatsoever.
They actually underpay on the cash comp side. base and bonus for a VP level is around $400K ish.
Feels light for a 'megafund' (at least in private credit & GP stakes verticals)
So it should be thought of as $400k cash, no equity, no carry at VP level? How are they recruiting people then? Feels like their team is reasonably well credentialed.
Not saying it’s bad to have carry at private debt funds, but it’s far less of an important part of total comp than on the PE side. First, you don’t get favorable tax treatment, since credit fund earnings is from interest income rather than cap gains. Second, MOI of a very good senior credit fund is probably around 1.5x MOI, so you have a much smaller pool pool than a PE fund that is targeting a 2.0x net return at the fund level. Lastly, credit funds often have 10%-15% carry percentages, which is less than PE funds. The path to making a ton of money in private credit is working for a scaled player with a ton of AUM in my opinion, not having huge carry distributions.
Completely agree , except those 2x net MOICS in PE are becoming less and less.
You just need gross tho
Partially disagree.
1) As mentioned, 2x MOI is always the base assumption for carry expectations in PE yet many funds are not generating 2x MOI.
2) You completely disregarded headcount - our firm's credit fund is only marginally smaller than the direct PE fund but with <40% headcount - obviously not only carry pool but also # of people with carried interest matter
3) Frequency - at least for our firm, we deploy credit funds faster the equity funds, i.e. you should receive carry more regularly
4) Tax treatment - I admit it is complicated but I know several firms which have found a workaround to have the same tax treatment as equity funds - talking about Europe
So if you have a homerun fund, carry in PE will a lot better compared to PC - but PC carry is definitely not irrelavant and better to forecast
Assuming we are taking about BO's debt oriented products, these generate interest and occasionally dividend income with limited capital gains. There is really no tax advantage to earn carried interest if the underlying investments don't generate material capital gains as you won't benefit from the carried interest tax benefit...that being said, unless you're a partner it is usually better to just earn higher cash comp at debt funds.
BTW: most people have no idea what I'm talking about when I mention the above and then after some research they freak out and realize that the carry they're going to get from their debt funds will be taxed the shit out of lol
People in credit hear “carry” and automatically associate it with PE carry. Not here to debate the inputs/variables but just to provide back of the envelope math for some context.
Per $1b of fund size. Regular way direct lending in a normalized non SOFR > 5% environment. 1.3-1.4x so call it 1.35x. Incentive fee 12.5% (generous on a blended basis). European waterfall. Each point of carry is worth $437.5k. More than likely starts paying out beginning in Year 6. Taxed as ordinary income. In this example, I’d take an extra $50-$75k/year in bonus all day long.
But the whole point of doing credit at a volume shop is scale. Blue owl doesn’t have any 1Bn funds (do they?), but they deploy and fundraise at the speed of light so you should realise carry much more frequently and at larger payouts.
Carry in the US is definitely taxed at LT cap gains if the investment tenure permits.
Why would people want to do buyside if no carry?
Ha, there are a ton of other reasons why investing roles are more fun than IBanking roles. I worked for a schmucky little Growth Equity shop straight outta college and didn't make shit but it was a cool gig for sure and I still haven't totally gotten used to being a service provider bitch boy. Mostly it's just nice to get to look at deals once someone else has gone through the pain in the ass "prepping materials" phase that takes massive amounts of work and iterations on the IB side. Turning the clients cluster-fuck of an FP&A model into a sensible, clean Financial Model and tying out different inconsistencies that always seem to exist within Audits, QoEs, internal financials, etc. is always a pain in the ass. Great when someone does all that stuff for you, pulls together an investment highlights memo (CIM/OM/Whatever) for you and pulls the data room together for you. Sucks to be the one pulling it together sometimes. Also, you only have to speak for your fund and what your fund is willing to do. In banking you're talking to dozens of interested accounts and end up having to pull together prelim diligence requests or model out their term sheets for ALL of them. On the investing side you only have to worry about servicing your specific DD analyses (and the bankers often do it for you anyway) and/or running your specific proposed structure through your model.
Just my $0.02 but I was as a super LMM shop with great WLB, I'm sure being an Associate at Apollo or somewhere like that is still pretty brutal.
Lipschultz may not offer carry but Rees said in a Bloomberg interview early on that his side of the business pays everyone carry, including associates. Can anyone vouch for this?
Blue Owl has several busines lines. Rees (who Libshutz tried to fire after buying his firm) runs the GP stakes business, which generates capital gains, so yes it pays carry.
Do you know what the comp is roughly on the GP stakes side of owl and how much approximately associate or VP carry is?
Do they not charge carry? or is carry just distributed to the owners of the firm?
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