Final Close:Fund I- how long until carry?
I interviewed today with a new private equity group that just closed its 1st Fund. This firm has made only 1 acquisition to date (3 currently under LOI). If I were to start working there in the Summer (May 09), when would I expect to see any type of bonus, carry, etc? (2011?, 2012?) Does the firm have to realize some of investments before bonuses are paid, or can the mgmt. fee cover some of the junior level guys bonuses?
I am currently a 2nd Year MBA. I believe the firm would bring me on as a Senior Associate at a base of $110K - $125K. Do you think I would make more money in the next few years pursuing an IB associate position instead?
Your thoughts are much appreciated.
Depends on the particular fund. Generally you assume a hold period of 5 years and typically there's a vesting period once the carry is realized (at bigger shops) and not share with new people that join the firm since the investment's closed (it protect your carry from being diluting down).
I think this is a conversation you would want with them, typically juniors are paid some type of bonus irrespective of realizations from the management fee stream.
you get paid your share of the carry on investment realizations. So, if we sell one of our portfolio companies this year, I'll get my portion of the carry on that investment at the time of sale. However, I don't get 100% of the carry as the firm withholds a certain % to set aside in case there is a clawback. Also, I only get carry on investments made after I joined the firm.
Bonus is paid every year and is similar to banking (i.e. funds of similar size pay similar range across the street). So your comp in a given year should be cash composed of base+bonus plus allocation of carry.
Whether you'll make more or less than an IB associate really depends on the fund. If it is a mega fund than you'll make more than in banking. However, if you are going to a small mm fund, you could potentially make more in IB in cash comp. Ofcourse, you won't have the potential upside of carry in IB.
Couple things to consider: Not every fund gives carry below principal level. Also, the majority of PE recruiting is done at the pre/post MBA associate level. So, if you go into IB first, it will be much more difficult to jump to PE.
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