I recently joined a fund and the carry agreement they are offering includes terms that note if I join a voluntarily resign and join a competing PE fund (broad definition) all unrealized carry (both vested and unvested) is forfeited. Is this market?
Curious what others have / have seen.
Seems pretty tough one to negotiate away given they are offering the value, expect you here long term, etc.
That seems really off market. In reality that might mean that you have to pay back distributions of carry? (even after paying taxes on it, since distributions can outpace vesting)
I don't think that is fair or practical. Vesting overtime should be enough to ensure that you get paid proportionately to how long you stay. If they want a non-compete for X amount of time, they should award severance with a similar term length. Also, depending on the state it might not even be enforceable.
I think he said unrealized a distribution is realized
I've seen clawbacks like 20-50% for people who go to competitors above is prob off market yes
Yeah I'm referring to unrealized carry. Realized proceeds would already be in the bank.
But the unrealized can be ripped away, hell or high water, vested/unvested. Doesn't matter. All of it.
Curious is this normal, mixed, or rare.
Any other datapoints would be appreciated.
The whole point of carry being vested is that it belongs to you at that point if you leave. I've seen arrangements where vesting is capped at 80% if you leave but forfeiting all vested carry is absolutely not market.
I would say walk away if can't strike that part of the agreement, but it sounds like you've already started. Why would you join a fund without agreeing on carry structure first...?
As others have said, absolutely not market.
Am at a mf, and have a 12m non compete where if it's breached all carry is forfeited (vested and unvested).
Working at a mega fund as well - clause seems to be in line with what is defined as a ‘competitor event’ in our documentation in which case you lose all unrealised carry and even your co-investment gets bought back the lower of cost or current marks, meaning you will certainly lose all unrealised gains on your co-invest as well.
If you change industries or retire, you can keep your co-invest and vested carry. You will then get paid over the years when the corresponding investments get realised.
That co invest clause is rough wow . Lower of cost means 1x basically ?? Would never invest
While forfeiting vested carry for competing is massively punitive and unfair to the employee, this treatment is a lot more common than people realize. It is definitely market for MM PE in Europe and comes up regularly in the USA as well. Don’t expect to be able to negotiate it away… usually the terms of the GP Agreement are non-negotiable. Fortunately it is only triggered upon a voluntary resignation so you’ll be okay in the event you are terminated (not for cause). Make sure you have a really strong appreciation for what is defined as a competitor (usually it is a ridiculously broad definition)… it may matter for the future.
If you find the provisions untenable, you wouldn’t be the first person to leave a fund because of GP Agreement terms…
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