Getting pushed out because I didn’t co-invest enough?
I’m currently a senior associate at a MM fund (lower end). Our firm typically offers co-invest to everyone. I co-invested a small amount in the last fund when I joined. We are currently in the process of raising a new fund and my partners and I started discussing co-invest in this new fund beginning of the year. I told them I would do a small increase compared to the last fund and they said that’s still below the typical range for my level. Since then they spoke to me a few times trying to convince me to do more - I made it clear that I can’t go above the range I gave (I want to buy a home in the near term and want to have as much cash as possible; also I personally never felt comfortable with all my wealth concentrated in one job at one firm that focuses on just one or two sectors). Recently I started feeling things seem to have changed - the partners don’t take me to meetings as often and instead take associates who are more junior to me, even for meetings with targets in verticals I have a lot of experience in. I am also not getting staffed on new deals while others still are. I am hoping I’m just being paranoid - but does it ever happen someone gets pushed out of the firm just because they don’t commit enough co-invest? What would be your advice to me for this kind of situation?
I would just be really clear you're saving up for a house in the near term and need some liquidity in the next 2-3 years... forget the other reasons.
I totally agree with you that logically you should diversify your wealth, but many PE firms require seniors to have a pretty significant stake in the fund so they have "bought in" in a way. Sounds like they extend this down, not sure how much you invest so hard to pass judgement without knowing numbers. Senior aso is a bit junior to expect someone to invest a significant amount, but these smaller funds can kind of be the wild west and it might just be one or two partners who feel everyone should be very tied to the firm and its performance. The fact that you're acknowledging it's very small, I lean towards they just do not think you have bought in enough while everyone else has tied a lot of their wealth to the success of the firm.
If you want to succeed at this fund I would say you're buying a house around X time and can increase coinvest more then. If you're not comfortable investing more then look around for opportunities.
That's why I think the LP demands that GPs 'eat their own cooking' is so unfair to the GP/ PM - that's just pressuring them to concentrate their personal wealth. It's already standard advice for regular people to not invest in their company's stock (to diversify). Co-investing your personal wealth into your fund to 'eat your own cooking' is such a shitty financial decision
(Speaking as someone who works at a GP).
LPs are being asked to put their money at risk with GPs, and pay them quite a bit in carry (if things go well) and fees (either way). Cash comp for GPs is huge compared to most jobs. Even if it doesn't hew to standard personal finance advice, it is extremely reasonable for LPs to expect that GPs will have a meaningful amount of risk tied to the success of their investments / a strong incentive not to do bad deals.
Obviously a sr. associate isn't one of the leaders of the firm, but I simply think it's wrong to say that these demands are unfair at senior levels.
That’s nice you still feel invested but no one’s going to pay you 20% carry and a management fee on top of it if you’re not willing to risk any of your own capital.
Why do you think it’s so unfair? If you’re an LP who’s paying a lot in fees to your fund manager, you definitely should expect that they are staking a solid portion of their NW in the fund so that you know there’s alignment / incentive for the fund to do well.
Sure, it’s a shitty financial decision to not be diversified, but why would an LP care that you’re making a shitty personal finance decision as it pertains to diversification if the LP is giving the GP money and wants to ensure that the GP is just as worried about themselves having a great outcome?
In these situations, don’t ignore your instincts. You are a smart guy to get this far, and I would say if you feel that you are getting push out, you probably are!
If I put myself in the shoes of the partners, one, they will feel incredibly blighted at hearing no (having seen enough, these guys are generally used to being pampered with a lot of Yes’es) and every time they hear your name or see you it keeps reminding them of that ‘No’ and second, if they are decided on screwing you over, less projects is the way to go about it, since you are only as good as your last closed deal.
I have been there (not exactly similar to you) in terms of being passed over for good projects where I had the sector experience, and I did later learn the reasons as not being in favour.
Logically, can do two things, get the fuck out (but I don’t know what’s the consequences for your existing investments, comp etc) or try to change the narrative - like bring in the hottest investible company or may be a LP - to show you are committed and willing to contribute in other ways while you tide over your future personal goals. It’s a hard one to pull off, but considering the current market, may have to swallow your pride and try..
Thanks. I will probably try to look for other opportunities now
Why not just be up front about the house and tell them you’ll commit to buying in a chunky amount later
This. Liquidity, liquidity, liquidity. PE Managers hear the term like 10 times a day, I think they'll get it that you've got to buy a home.
Your bosses probably just want you locked in versus collecting cash comp for a few years and dipping out. Could be a sign that they want you to stay if anything. Agree you're young for this, but at a certain point you will have to put a ton of chips down on the fund you work at. If this fund isn't the one you want to go all-in on, then keep looking patiently. Lawyers for example have to buy into the partnership oftentimes so it's not unheard of, just happening early in your case but I'd think that's an indication they see you as on the partner track.
I’ve mentioned buying home but I think the other 3 senior associates before me all put significantly more than I do and they had help from families for home purchases… different personal situations but they have set the bar too high now
One thing to note too, if you're starting to think they're ignoring you or giving more love to others, your sonofabitch brain will start to find reasons to believe it and overanalyze each interaction you have with them. Echoing others, just tell them you are buying a home and can't go as hard as they want.. also you're increasing whatever you put in in the last one so it's not like you're tapping out or something. Unless they're total psychopaths, they'll understand and you can move on.
What are ballpark numbers that a senior associate or principal would be expected to co-invest?
I have just a nominal amount of carry at my fund. Grateful to have it but currently pegging it as worthless until I get a carry check. I would consider co-investing in this fund because the returns have been good and I like the strategy, but I don’t have much cash at all. I would throw a bonus in but are we talking putting in 10-50,000 or 100-300,000+ in these situations?
The former when I was an associate and the later now I’m a senior associate
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