Ex lawyer turned PE guy in need of career guidance
Hi all. I am an attorney by schooling, started as a commercial litigator, and eventually got a role as in house counsel for my friend's newly launched private equity fund. I was helping out a bit with deals mostly on the contractual end at first. My boss started teaching me how to model, and eventually asked if I wanted to switch to deals. I liked law but deals really got my blood going and made me happy, so I switched.
Fast foward to a year and a half later. We are a very well capitalized fund with investors who have a history with our principals, but due to the structure and timing of the fund, we will likely not exit our first company for several years, and our newly launched startups and aquisitions will not turn profit positive for a few years as well.
My salary is somewhat close to market, but my bonus is non existent. Rather than paying me a larger bonus, I am given phantom equity in our portfolio companies that only pay off in a buy out. The hours arent bad most of the time with exceptions, but it's an intense job, and I am not sure if the pay feels right anymore.
My one option is to ride it out and see where it goes. I am confident my company will reach their goals because the team is highly talented, but since the bulk of this company is operations and I am the only investment fund employee besides the CIO, not sure if I would ever reach market. Other than the pay, it is a great work environment and I really enjoy it. My boss is an ex bulge bracket banker with a lot of experience, and a great mentor.
Other option is to bring myself up to speed skillset wise and try to get recruited to a more traditional PE fund. Only reason I would do this is for compensation reasons.
Since I am an outsider to this track, I'd love to hear some of your input. Thanks for reading, really appreciate any advice/tips.
How substantial is the potential pay-off in these equity shares if everything goes reasonably well?
Hey Coreytrevor,
Hard to tell. Right now the shares would basically give me a deferred bonus but still on the very low end for PE. If they continue to up my shares each year and offer it for additional subsidiaries, it could be nice.
You say that the only reason you are considering a move is due to your level of compensation. If that is the case, I would think twice about a move.
First of all, it sounds like you are given a tremendous amount of autonomy in your current role - something which you may not necessarily have at one of the larger, more established firms. Also, you are getting equity in the portfolio companies that your firm invests in. This is pretty much unheard of for the majority of employees at a PE firm (e.g. not until you start getting to Managing Director-level) In addition to this equity, are you also allowed to invest your personal money into deals that your firm does?
Honestly, it sounds like you are in a great situation right now.
I don't know about that. It sounds like he's much more levered to fund performance on the downside but upside is market, which doesn't make sense to me. Given how much riskier this gig seems to be and the fact that you're deferring a substantial portion of your comp to a performance structure -- what sounds like meaningfully more than market -- I would expect the future payout to be levered to the upside to the tune of substantially above market.
Basically it sounds like you're not getting paid much because the firm in nascent. You're not the first person to find themselves in this circumstance, but usually its worth it for them to stick it out on a shoe string because the future payout warrants the short-term sacrifice. If thats not the case, I'd have a frank conversation with your boss.
You can't pay someone with an equity return on the downside and a debt return on the upside.
The best way to have a frank conversation is to be well armed by being able to articulate: (1) your contribution; (2) what is market; and (3) what your alternatives are (make sure you know what this is, but obviously don't tell your boss).
Also this is completely untrue. This is fairly common, particularly at smaller shops. I know people (probably more junior than OP) that have gotten phantom equity and co-invest... even co-invest with non-recourse leverage, which is ridiculous... i.e., you co-invest $10k and the payout is as if you invested $30-50k, that's how some of these much smaller shops are able to attract talent.
My apologies. I should have said "traditional" PE firm.
I'm sure this is common with smaller shops, as you mentioned, but OP said he was interested in possibly making the move to a "traditional" firm which would be a larger and more established firm. I have some family and close friends who work at these mega PE firms, and I don't think it is too common for junior employees (junior as in pretty much anyone below MD, Principal, etc.) to co-invest.
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