Wanted to see if it’s the norm/plausible for companies to pay for the non-compete penalty or a portion of the lost vested carry? E.G. I recruit for a new company and notify them of the amount of money I would stand to lose from unrealized carry, would the new company be willing to pay a portion of it?
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Hell no. I’d rescind the offer if someone ever even asked me that
Why...?
If they recruited you and they expect you to leave within a time period that puts your carry at risk, it would be pretty standard that they compensate you for some portion of that. Structurally could could look like a signing bonus with clawback, amortized payout, additional carry allocation, etc.
Yes this is a thing, however, “buyouts” are usually reserved for upper management and won’t apply to say and associate.
EQT does this, I am sure others also do
At the senior levels this definitely happens and is expected. The valuing of the carry, etc is always up for negotiation. But if you are recruiting for a senior role there is no reason not to negotiate this (most senior people wouldn’t leave if you couldn’t get paid out on it).
Depends a bit if the move is a pull or a push. If you're proactively leaving your old shop then why would we compensate you. If we ask you to leave, fair enough
Because rarely is a senior person pushing to join your firm. Even if you apply to a job because you think it’s a good fit, as a senior person you are not leaving money on the table. Generally, it’s as you say, because even if a senior person applies, if the firm ultimately wants to hire them then it is a pull.
I’ve seen this happen countless times (source, wife is a partner in PE).
Any specifics on what this may look like? For example, if you have $6MM carry dollars at work and leave with half vested, does the next firm pay you a sign on bonus of $3MM that “vests” over X years (ie clawback if you leave early)?
Unless you are senior management, no one is getting 100% of unvested carry as a buyout
Common ways to do it are 1) giving you carry on existing deals in the fund or 2) giving a bit of extra carry to compensate
As a junior/mid level, think 20-50% tops in terms of how much they'll give you - you are unlikely to get entire buyouts of your unvested piece, and some places don't buy out unvested as a policy. Worth flagging to the team and maybe you get a little extra carry, but I would not walk in expecting 100% unless you are partner level
Thank you! This is helpful. What does the buyout structure look like at the partner level? Is it also carry in the new fund to “make up” for forfeited carry? Or do they give you large forgivable sign on bonuses to true up for the difference?
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