I've been fortune enough to have two buyside jobs in private equity and structured credit that both offered "equity". The first one was classic carry which was exciting until I left and they exercised a right to claw back all carry if you stayed less than 5 years.
The next job claimed they were giving carry but when the docs came in - 4 months into the job it was a phantom equity interest structured as a cash bonus IF you were employed at time of exit. They eventually decided they wanted to move my role to a London office where the CIO sits so I got cut. They wanted me to know they were very generous in allowing me the potential to be paid if the deals exit within 2 years of full investment - and not a penny if later. The carry in this place was deal by deal with 4 year vest per deal instead of 4 years besti at a fund level, so year 1 you vest 1/5th of what you would otherwise get.
So all in all two jobs - left the first for the second and in doing so lost all my carry. Second job lied about how the equity would work (and how much I'd get) and then when they asked for a resignation I walked with to maybe get 50k in 5 years.
Moral of the story: take the hedge fund job if you think you might leave in less than 10 years.
lol who is your gripe with. Sounds like you either didn't know how carried interest works in the first place and / or you left to take an even worse job with less upside, that ultimately didn't see enough value in retaining your work product.
It's extremely rare for a fund to give you a copy of the subscription docs. You ask how it works and then sign.
The claw back at the first fund was basically hidden within a bad leaver section where they had the right to classify people who'd been at the firm for under 5 years as bad leavers. That place had a grant sheet that was like a short couple page document that gave you what they considered all the relevant details but then the final doc you had to sign was way longer and had that clause buried in it allowing the claw back.
This isn't about what's in or isn't in the contract. It's that every firm will tell you a story about how vesting works, what your DAW is etc but then when the docs come there's always some clause in there they can use to fuck you and you have no option to negotiate
To steelman the other person a little bit, you counted on compensation being owed to you before even reading what that compensation actually is. Regardless of what a firm says, the only thing that matters is what's in the docs. Whatever a firm says should be treated as irrelevant. Only what is contracted for is what you should trust.
But I entirely understand the frustration and PE should do better
Why would you sign and start a job without having clarity on what the carry structure is? Or leave before a clawback which they would obviously exercise?
Carry is not super meaningful at ASO - you get very little and if you're going to jump firms, ASO is the time - but at VP+ carry is much more than the cash comp, so you need to be aware of 1) detailed structure, even if you're holding the process up a bit because you need more information from them about what the carry actually entails and 2) clawbacks and whether you're willing to commit to a firm for that period.
If these were RSUs at a startup, absolutely, that is worthless for a long long time. But carry at an established PE firm is not usually a big question mark, you just need to be smart about it and know what you are getting into before signing a job... instead of just initialing on every dotted line because you're excited about the offer and dealing with the details later.
Too junior to get carry but had some honest convos with my MDs on how it normally works. You don't really have a choice, at least for carry grants - you get the summary of key terms like the other guys said but the whole doc is not given until you start for reasons of confidentiality, even for MD-level hires. And the market is such that there is always some stuff in the full doc than can be used to take it away for any reason whatsoever. Two of my MDs have separately advised me to always assume carry is complete BS - in their experience maybe 5% of all career PE professionals actually get a material payout from carry. There's a self-serving bias of course since my fund doesn't give carry to Associates and VPs, but it tallies with what I've seen on this forum.
If it's carry you buy into as part of starting the job it's a different story of course - at a bare minimum you can get access to the whole doc, pari passu with the actual LPs and a management fee exemption - but then you have to put a significant amount of your own money in. Without putting in your own money you basically have no room to negotiate. But interested to see if the more experienced PE folks here had different experiences.
This also highlights the importance of reading (and understanding) carry docs. While unfortunate, it doesn't sound like these firms did anything out of line with what you agreed to based on the documents you signed.
Unless we’re in a ZIRP bubble run up, PE is usually a get rich slow scheme (ie 10+ yrs after receiving carry) for just these reasons.
You’re overthinking it. OP is just an idiot
I'm pointing out what the OP just realized about comp in PE (ie heavily backloaded), so that other people don't go in with the same expectations.
the reality is vast majority of carry is constructed like this and unless you are joining as a partner, you're getting carry docs AFTER you start and not before. And it's not like you can negotiate anyway.
Yep
PE investor wants to be taken seriously but doesn’t know how to diligence his own employment legal docs, rich.
All I got from this post is you never asked for the docs until you started working there?
This is standard.
You're never given a copy of final docs. At the first firm they didn't exist yet and in the second firm they wouldn't provide.
You won't get the finalized docs, but it should not come as a surprise to you that there is a phantom carry structure or significant clawback. That is on the employee to diligence before they sign.
MD type people do switch firms on occasion, and they are not just hoping for the best with carry docs. They diligence the shit out of the carry structure and terms, and you should too. If a firm won't give you info on carry or is pressuring you to sign without knowing what you're getting, you can and should walk
Lot of people commenting I'm an idiot - and fine you're entitled to your opinion - but I've never heard of a single firm that lets you read through finalized subscription documents before joining. That's especially true at the associate level but I know multiple partners, principals, GCs that had the same situation. Oftentimes the docs don't even exist when it's a new fund being raised for which you'll get equity.
My issue with the practice I've seen is that you're told one thing either verbally or in your offer letter and it turns out they've lied or committed significant details. The classic one being you're told a vesting schedule but they never tell you all the ways they're going to add in loopholes to not have to pay you. By the time you get your docs you've often been there for several months or a year and you have no ability to negotiate. It's basically take it or leave it - and leaving it basically means you're going to resign (and possibly lose your bonus as well)
I think it's a practice that sucks and people should be aware of.
Thanks for educating some of us interns
Seems like OP got a bit carried away
In an ideal world everyone would have access to the carry docs with vesting schedules, departure terms, carry percentage, percentage of GP commitment needed, etc etc before people take up the role so that they can make the most informed decision possible. But as OP and throwawaybadabing mentioned this usually isn't possible unless you're co-founding a GP or joining at a very senior level.
I would say for the vast majority of cases for joiners at Associate/VP level candidates usually have very little negotiating power and therefore the PE firms have no incentive to let you know the exact carry details until after you join and it's time to incorporate the carry entity for the new fundraise. Any conversation would usually be met with a combination of:
"Hey, you don't trust us? We don't screw you over, don't worry"
"Who tf do you think you are? Everyone is agreeing to this, accept it or resign"
"What are you going to about it?"
Of course it's OK to think that OP should have done better with the pre-job diligence and all. But I think OP is just trying to send the message that to a very large extent the realization of carry is out of your control unless you have a very direct impact on the fund's success (partner/MD). Heck, even partners get screwed out of their carry all the time. Won't name names but a few GPs in Asia have actively screwed their departing partners out of carry. Not even taking a portion of vested carry away, I'm talking a big fat zero for years of hard work.
Some terrible carry/employment terms I've seen include but are not limited to:
10 year long vesting schedules, back weighted
Ability to buy back GP commitment at cost (therefore no carry)
Tiny percentages of carry granted to non-founding members
And that's all excluding GP commitment! Say LPs want 10% GP commit on a $5 billion fund -- the team has to pull out a $500 million commitment out of their ass somehow. What if your previous fund's carry hasn't been realized yet? Tough luck, go borrow from a private bank against your DAW.
Carry is why people in PE stay for the long term and encourages longevity yes and LPs love to see it -- but from a career perspective, investment professionals should defo be very very clear on the risks/terms that comes with carry
Thank you! My first fund all the departing partners got blasted with buybacks at cost and other stuff. Lawyers and settlements.
Honestly the rule basically is if you're not there the day the last investment is exited you're probably getting shortchanged in some fashion
It's true that most funds won't give you the docs to look at prior to joining (although it couldn't hurt to ask). In reality, the best you can usually do is find someone internal that you trust (ideally a relationship that predates the interview process, otherwise someone you interviewed with), and ask them these questions. If it's a new fund without carry docs then yeah, you're basically taking a flier.
Well... yeah. Carry is very specifically about future outcomes. It is going to be highly variable. Any halfway intelligent company is going to put conditions on the carry.
Carry should be treated as $0 value up until the point that it actually hits your account on an unrestricted basis (ie - outside of a clawback period).
You say that as if it were obvious - but if it were that obvious and "duh" - then most people should realize that in actuality, PE is lower cash-paying than comparable IBD positions at that level of seniority with a much tougher upwards climb.
(1) Yes. It is obvious. Contingent comp should always be treated in this manner.
(2) “but if it were… upwards climb.”
You are misunderstanding what I am saying. I am not saying that PE is lower cash comp compared to comparable IB. I am saying you should never treat carry as actual compensation until it hits your accounts unrestricted. I am not saying carry is worth $0. I am saying until it is your unrestricted cash, it should be treated as $0. Two different things
Delete
There is something funny about PE guys that always fuck people on earnouts not being able to read a contract.
I've never fucked anyone on an earnout and this isn't about anyone's ability to read a contract. Nobody gives you the fine print before you join - when the docs do come in you have two choices either sign or resign. Resigning without another job shortly into a gig is a bad idea. Funds omit details about what's in the docs. Your partner you're friends with will lie or fail to mention key details.
if you can read the docs before signing - great, but it'll never happen. You just need to know you shouldn't count on the money unless you're sure you'll be there for 10 years. It's far less guaranteed than startup RSUs or HF bonuses
Startup RSUs don't even give you enough information about valuation or ongoing reporting. So, not really lol
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