Carry for credit funds
Hi all - see lots of posts on PE funds allocating carry but was curious how this worked / to read across to private credit funds: - Does carry typically get allocated to VPs+ at credit funds? - If so what is the typical math used for credit carry vs. PE carry (I.e lower returns so 2x return estimate not relevant)? - What is the market to expect in terms of annualized comp if carry hits reasonable range of return over life fund for VP level and above?
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Following. Would like to get some color on that as well. I know that VP and above get carry but I wonder if it’s remotely close to what PE VPs get.
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Crestline charges 15% (which is insane) since they generate 10-12% returns and like 1.2-1.3x multiples. This should be like a 7.5% carry max asset class, if not even lower.
Not sure if you work there but I came across them on a deal, they had a crazy moic construct taking them to a 1.75x if my memory holds up. It was for sure a 1.5x+
A 10-12% return is nothing to sneeze at where you’re focused on capital preservation and can offer much less volatility than a PE fund that has a few bagels and a few home runs netting to a 15-17% IRR charging 20%.
Look into PE secondaries. There are two secondary funds since inception that haven't returned investor capital - can't say the same for generalist credit. Secondaries target 15-20% and often have a discount to NAV...downside protection and capital preservation.
So no one has actually answered the OPs question yet. How do fees / profit share typical translate into carry figures for VP+ on a dollars at work and annualized basis?
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Each fund and firm is different but from what I have seen carry is more of a privilege vs a right in PC. There are ED’s that don’t have carry at certain high profile shops. So just be aware, VPs don’t get it as a guarantee. With that said , a senior lending strategy at a MF can charge 15%/1.5% on fees and a Mezz fund can hit 20%/2% on fees. These funds are becoming quite large so if you are in a Mezz strategy and get as an ED 25 bps on a 10 Billion fund, you could see 10B x 1.55+ MOIC x 20% of profit x 25 bps = $2.75mm. Do that on a few funds and earn $700k-$1mm year cash comp sans the carry and it’s a decent deal.
Gotcha - this is super helpful. When you think of players like Golub or other larger direct lenders that have a mix of mezz and senior debt do you think of your 1.55x MoM more like a ~1.3x blended? Also curious of how prevalent carry is at the VP level at credit funds either directionally (I.e. x% of the time) or specific name of funds that reward it.
Im at a $1bn AUM special sits fund, we charge 2/20% with target IRRs of 15-22% in our unlevered fund and 25-35% in our levered fund. Senior associates get carry, not sure how much per year but one of the other Associates who's been at the fund for 5 years has $700k DAW.
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