How much have you actually made from coinvesting?
Seems like a big perk of many PE shops but has anyone actually made money from it? What is the time horizon? Starting at a MF soon and they allows up to $300k for coinvesting but not sure if it worth taking out loans for (they have a banking relationship that can provide coinvest-only loans).
Bump
Bump
I've personally made a huge return on it but obviously it's definitionally correlated with your fund performance so YMMV, that's sort of the point.
Personally, not a dime since we haven’t had an exit yet on any companies added since I joined. We just had a few 5-7x type exits in the last year or so, which means I’ve heard a lot from our principals about making $100k on the ~$10k per deal checks they wrote as associates in like 2016 and how they wish they’d allocated more. No word on how they feel about the deals still marked at like 1.8x 7 years in…
damn how were they able to invest 10,000 per deal as associates? at my firm we're only allowed $5,000
No defined cap on coinvest as far as I know. Some go as high as $400k in the fund, which works out to like +/- $30k a deal. They’d probably stop you from dropping a $20MM commitment if grandpa just died and left you the keys to the castle, but as far as I know no one’s been shut down before
If your firm allows levered coinvest with no fees and has a decent track record, it seems hard not to make above S&P returns?
I'll have to check on the interest rate when I start. Firm is a MF in Boston. Returns I think must be >15% IRR as a whole.
Bain Cap?
I've invested about $170K so far. Currently on paper worth a little over 2.0x about 2 years in. I've realized about $55K to date. Should be receiving another sizable check soon.
Question for everyone - what is the typical amount of capital you're able to deploy in your coinvestments each year?
My firm is $300k max (at least across all of your Associate years) and thinks you don't get to pick which deal it gets deployed in
That's insane. If I'm giving $300k of my own money you better damn be sure I'm picking what investment it goes into.
NY MF. There is no cap whatsoever. One of our principals had a lot of conviction on our last deal and threw in $2MM.
Random question but aren’t MF principals like 29-32 (if thinking of big 3 NY MFs) — how’d this guy come up with $2mm 😂?
Also, did he take $2mm of his own cash and then lever it up? If he took 2, levered to say 4, if he has conviction maybe it could be like a 3-4x deal, those are some serious gains + whatever carry he’ll get I’m guessing.
But co-invest will be way bigger than carry, no?
I invested $17.5k in PE, haven't gotten any meaningful distributions yet though
I have invested ~$500k over the past 3 years, and am sitting on ~$750k value at current marks.
I like the peace of mind associated with large co-investment, because I am comfortable in my firm's strategy and the skillset of my seniors, and I don't have to spend a second on figuring out how to deploy my capital elsewhere (which most likely would be with worse returns anyways, especially on risk-adjusted basis).
I also had the pleasure of working on a deal as an analyst (no co-investment) that ended up generating a >10x MOI, and having to hear 30+ monthly updates "xxx had another good month" really sucked without any skin in the game.
I didn't have any realisations yet though - I expected $100k-$200k in proceeds this year based on a couple of early realisations of very strong performers (3-5x MOI in <3 years), but the current environment in the credit markets obviously pushed those out by a year or so.
The rationale behind maxing out my commitment ($500k per fund) was that I don't really need my associate boni while in my 20s, and I can recycle the proceeds to commit principal co-investment with 75% LTV leverage in my early / mid 30s where I would likely want my principal cash comp available to be spend at my discretion (flat, family, ...)
bruh ain't no way you seriously called bonuses boni
Curious about what happens to Carry and Co-investment if you jump ship mid-way? Understand that you loose your carry but what about the co-investment? Are you treated as a LP once you co-invest?
Carry completely goes away if you leave? Wouldn’t there be some sort of vesting schedule based on tenure?
This actually brings up a good point — what do vesting schedules typically look like?
Always varies by fund. Most common structure in my experience:
For carry - keep vested carry, lose unvested, nothing paid out until exit same as everyone’s carry. Sometimes they can buy back your vested carry when you leave at the current mark, which gives you immediate liquidity but is almost certainly below the eventual payout given that value creation often really accrues in later years (the j curve). There may also be a penalty for going to a competitor, like losing a certain percentage of your vested carry.
For co-invest - most often you just convert into a standard LP. You may or may not still be obliged to cover future capital calls. If the fund gave you leverage, you often need to pay it back, which can be pretty painful if you need to suddenly cough up a six figure check along with losing your carry allocation and bonus. Sometimes this can be bought back as well, but less common in my experience
Co-investment: Firm has ability to acquire unrealised investments from the leaver at the lower of fair market value (latest quarterly mark) and cost, which is obviously highly punitive but this is never actually done - basically just a bad leaver provision for people that do insider trading while taking taking a dump on the CEO's desk or so. Every leaver I have seen over the years just kept his existing investments and got random payments as those were realised. They just lose the right to keep co-investing given it's an employee perk (no fees), i.e. their outstanding commitments become void.
Carry: 5-year linear vesting schedule for each individual investment, counted from day of deal close to 1st closing anniversary (20%), 2nd anniversary (40%) etc. It basically means that long-timers have a carry vesting event every [couple of] weeks. The final 20% can be declared void if people leave for a direct competitor (so you get 80% instead of 100% at realisation, even though the deal was done >5 years before you left). Not sure how often that gets triggered in reality, we barely have any leavers anyways (certainly none to other shops).
You own your co-investment - they can't just take that way. They might start charging you fees on it though.
YMMV - but for what it's worth - I am way less bullish on co-invest these days. The illiquidity really kills you. I have still yet to break even distribution wise from my associate days and that was *many* vintages ago. Sure it's "marked" at something really nice - but I think about a private unrealized valuation mark as "height" description on Tinder. Sure it's probably not 100% B.S. but we all know which way it's going to be skewed.
TLDR - If you have any need for liquidity over a ~5-year time horizon (business school, wedding, house) - wouldn't lock up too much liquidity. Maybe dabble - don't back up the dump truck.
Similarly to another poster, my co-invest basis is a bit above $250k at this point. On paper worth about 2.25-2.5x. Have received probably around $50-60k to date but that's largely exit-/timing-driven. I personally am a big fan as it is a great way to expand my personal "revenue streams" (e.g., salary + bonus, carry, phantom equity, and co-investment). Over time this is just another type of annuity that can start stacking up and help compound, etc.
Replying to my own post here but I figured I should also second another poster's point about "liquidity implications" as a potential drawback. I was OK with having less cash on hand (a lot going out the door for co-investments as well as other private market opportunities unrelated to my day job) because while the housing market was way too hot where I live and I didn't think I'd want to buy anything in the short-term, I also figured I had some big carry $ coming down the pipeline so that if the market turned I would be well-positioned to make an opportunistic primary home purchase. Alas, exits were delayed so I'm sorta stuck here with a lot of liquidity largely tied up. Don't get me wrong, it's all good, but this is a good example of what someone else what talking about -- I'm basically sitting here with a RE market that has cooled off substantially and I'm thinking "f**k, wish I had more cash on hand."
Flip side of the coin, etc.
there was a good reality check post about this a few years ago. the guy put it way more articulately, but essentially reminded everyone you can get rug pulled, often can't leave your shop, often get shafted on base comp because you're locked in for 7-8 years, still on the hook for draw downs, can get shafted on 1 bad investment etc.
Not sure I understand your comment. There is literally nothing about co-investment that prevents you to leave your shop, and it has zero relevant for base comp - why should it?
I mean golden handcuffs on both points. the firm usually has a call option to purchase your investments at the current mark at the time of your departure. If they decide to exercise the call right, the future co-invest commitment goes away. I've seen them exercise the call right and not, depending on the circumstances of the departure.
shafted on base- I meant in relation to carry rather than coinvest but didn't make clear in my reply - there are some replies on this now that explain it better.
Nothing teehee
Sharing my own strategy here - I’ve been at a solid fund for a bit over a decade. During the first 5 years, I managed my finances as if carry didn’t exist. Around years 6-8 we started making very material distributions, which enabled me to buy property. With housing costs hedged, I’ve since been investing aggressively (>50% of after tax income) in coinvest, and am convinced the strategy will yield solid returns without needing to manage it myself. Worst case, if I leave the industry I can live within my means until it pays out, which probably isn’t a bad thing.
Made about a double, but the numbers are tiny vs carry. I find the opportunity to invest fee free in credit funds more valuable than increasing my exposure to the equity fund I invest.
Why is this? I was at a direct lending fund for awhile and distributions, even at 10%, weren’t ideal from a tax perspective. That said, I wasn’t savvy enough to put them in tax advantaged accounts.
It’s not ideal from a tax perspective, but that’s just the nature of having a credit allocation. I generally want a 20% allocation to credit. Getting some of that exposure through fee-free credit funds isn’t a bad way of doing that (recognising the illiquidity).
In terms of managing equity exposure - we’re so tied to the success of the equity fund through comp, carry and employment status that I don’t feel particularly enthusiastic about increasing that further than is necessary and would rather diversify.
I also work in PC. Any advice on how to put your direct lending carry into tax advantaged accounts?
I was at MF PE where I was pretty aggressive with the levered co-invest for ~5 years and since left for HF.
Overall, it is a personal investment that definitely makes sense and has a spot in your allocation especially if you think your GP is fairly consistent and diversified. Being at a MF, I thought of it as levered S&P with cheap and safe term debt. All the debt was locked in at the ultra low rates of the yesteryears so felt pretty good about the positive carry on that borrowing. If your firm is sector-focused (eg. energy) or style-focused (eg. growth or distressed), I would advise being much more cautious with allocation % of your net worth.
With the forward outlook on interest rates and multiples, however, I would be more conservative with PE allocation and prioritize other levered income vehicles like real estate. The distribution ALWAYS takes longer than you expect and if you actually work in PE you should know better than extrapolating historical vintage IRRs as return expectations. IRR is not return. Your actual cash on cash return over full capital call and distribution cycle will be materially lower than marketing IRR. I’ve seen a lot of colleagues think of the math as “well 15-20% IRR beats S&P so I’m gonna load the boat”. This is a common logical fallacy.
Also, when you leave you don’t actually pay back the full leverage but the bank will often refi you at worse terms. This often incorporates the bank getting 100% of waterfall distribution until debt is paid off. This means even further delay of capital returns, and if you are active in personal investing otherwise, your redeployment pace gets pushed out which hurts your overall personal capital compounding. Just think of it as 10+ years to fully realize returns and plan accordingly in terms of how much personal liquidity you’d like to have for more opportunistic personal investments and life needs.
I’ve seen cases where there is no refi and it’s a pretty aggressive mandatory amort schedule with 100% distribution sweep (so you are out of pocket on taxes…). Definitely manage leverage appropriately when co-investing…
Would it change your mind if the realized and unrealized MOICs for my historical funds have all been greater than 3x (marketed IRRs are all north of 30% too)? We're a leading MM platform with 30 plus year history. Coinvest is made on a deal by deal basis across all the different fund strategies, but we do not have distressed or energy focused.
Is coinvest only for buyout or do growth funds allow it too?
Quam eos sed rerum est quis autem. Vero provident aut odio quod quod aliquam odit. Quisquam id ab perferendis dolores sint saepe nam. Consequatur temporibus quo rerum placeat explicabo voluptas quibusdam. Reprehenderit facere recusandae corporis soluta vero.
Sunt inventore quod et est voluptatem ut. Aut nihil velit porro id laboriosam. Quis laboriosam nihil quidem nostrum blanditiis corrupti. Ullam inventore praesentium et sed a repudiandae. Ipsum aut qui voluptas sunt vel aut. Quia officiis perspiciatis iste consectetur. Omnis occaecati sit et aliquid.
Dolore non adipisci nihil repellendus id repellendus. Aliquid iure laborum autem nisi omnis. Unde pariatur enim nihil pariatur laboriosam earum. Incidunt facere id omnis quia incidunt dolorem maiores.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Sed distinctio fugit unde aliquid illum. Qui qui sint aut animi repellendus sit. Voluptatem odit hic debitis harum quia error.
Numquam fuga voluptatibus ab dolor voluptatem. Qui aut maxime fuga repellendus fuga nesciunt. Consequatur vel et quibusdam aspernatur. Quis quis autem sapiente voluptas velit.
Explicabo dolores adipisci voluptatem qui quod expedita et. Ut nihil sit nulla voluptatibus facere. Eos nam totam debitis sit sed. Qui et et nisi velit rerum aliquid eaque quos.
Exercitationem nam dolorem non ex nihil nostrum. Qui praesentium non sit aliquam nam.