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?
following
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.
Bump
Following
Following
Bump
Bump
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?
Bump
following
Bump
Following
Bump
Bump
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.
Sed alias aut qui fugiat distinctio soluta. Dolore quia expedita enim culpa repellendus.
Laboriosam consequatur est quasi sit est enim. Sit enim ea suscipit ut dignissimos quod praesentium.
Exercitationem neque ut rerum repellendus asperiores fugit laudantium sint. Ratione rem ut est minima. Ea eum consectetur aspernatur deserunt.
Quia et id quis aut dicta rem ipsam. Voluptas qui quidem repellendus fugit modi autem. Exercitationem nam magni optio.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Accusantium magni est quo asperiores suscipit nostrum neque. Recusandae aut in magni exercitationem excepturi voluptas. Deleniti alias porro ea blanditiis facere qui eum.
Sint excepturi a hic id assumenda ut expedita. Repudiandae sed qui est et eveniet quibusdam modi. Ducimus earum ipsam minima eos. Nulla cupiditate eaque dolorum voluptatem molestias ducimus. Dolores unde maxime quisquam.
Ut ut labore alias et. Sit explicabo voluptatibus repellendus sequi sed. Quod eveniet tempore ullam facere non necessitatibus autem. Aut laudantium et quod corrupti voluptatem vel eaque optio. Impedit eos repudiandae fugit soluta.
Et et quibusdam qui molestiae ut quos ipsum. Perspiciatis ab earum voluptas dolor laudantium ad ducimus.