When carry DAW is quoted, my understanding is it is generally calculated as (% Carry Pool) * (Fund Size) * 20% (assuming 2x fund). However, most PE funds do not fully deploy their funds. Should you be applying the industry average "actual" deployment percentage to haircut your theoretical actual carry DAW? I would think so, though not sure if others are doing this or not.
Does anyone have a reliable industry average deployment %? I was able to find a few below which references Preqin. Curious if someone else has a better source:
The 2x is meant to account for this. It's all rough and hand-wavy anyway but the point is that 2x = fund-level returns, not deal-level ones. So yes, a 90% deployed fund will need ~2.2x deals but the reason for 2x in DAW calcs is because it's close enough to the downside case and allows for the easy math of just using the fund size itself as the thing you're multiplying the points by.
I disagree with the above comment - ours is quoted assuming 85% deployment, 2x on deployed funds. Value-add infra fund though, so maybe not how vanilla PE does it.
It's a crude benchmark for easy comparison across funds.
I would not read into this aspect too much as there are factors that are more important (e.g., vesting cliff, vesting schedule, track record/likelihood of strategy being above preferred, pace/size of capital deployment per annum, culture/career runway of firm such that you expect to be at the firm long enough to see carry materialize, expected carry allocation increase with promotion, % of GP).
I was quoted fund-level 2x DAW at fund-level, as another datapoint.
On a related note, does anyone know what is the industry standard for MOIC when computing DAW for private credit funds (specifically secured / direct lending strategy targeting 13% gross IRR)?
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