Carry Allocation in PE Fund Deal with Co-Invest
If you work at a PE fund that does a deal that is too big for the fund and therefore it goes in the fund and in a co-invest vehicle (specific to that one deal) in which carry is charged, how would you typically expect the carry to be split in the co-invest vehicle if you’re at the VP/Principal level?
Do some firms take the view that a co-invest vehicle is reserved exclusively for the partners and so none of it would go to the deal team (e.g., it’s purely discretionary)?
What I’ve seen most commonly done is the co-invest carry goes to the partners and the deal team, and the rest of the investment team (non-partners and people who didn’t work on the deal) don’t get anything (other than their exposure through their fund carry). Theoretically this should result in the deal team being able to get a larger carry allocation than what they get in the fund since there are fewer recipients. Is this how people have seen this play out in practice?
If so, does size of the deal matter or is the general thinking that even for very large deals with a material co-invest, the general thinking should be if a VP/Principal has [2.0]% of the fund carry, they should expect a carry allocation in the co-invest of greater than [2.0]%?
Another option would be to allocate the carry in the co-invest the same way as in the fund, that way investment team members who didn’t work on the deal still get a cut in the co-invest vehicle although I think this may be a less common approach.
Based on the most helpful WSO content, here’s how carry allocation in a co-invest vehicle typically plays out:
Carry Allocation in Co-Invest Vehicles:
Deal Team Advantage:
Size of the Deal and Carry Percentage:
Alternative Approaches:
Discretionary Allocation:
In practice, the allocation method depends on the firm’s policies, culture, and the specific dynamics of the deal. However, the most common approach aligns with rewarding the deal team and partners directly involved in the transaction, often resulting in a larger carry allocation for those individuals.
Sources: Confused about carry at PE Fund, Carried interest for Associates / Senior Associates?, What returns have you achieved from co-investing in your fund?, Vice President Fund Carry/Equity, What returns have you achieved from co-investing in your fund?
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