How to Secure Higher Carry Award Before Promotion
For those in PE with fund-level carry and up for promotion, have you been able to obtain a carry allocation in the next fund that would normally be awarded to those at the next title up? If so, how were you able to do this? Did you need to do anything proactively on your part or did the Partners on their own award you the higher carry package?
For example, if fundraising is starting for the next fund and the Partners are deciding carry allocations for the team, say you're a Principal roughly a year away from promotion to MD and the firm is planning to promote you (however, it's not clear whether promotion will occur this year or next year). In this example, would the Partners typically give you an MD carry award in the upcoming fund? Or would they just look at everyone's current titles (i.e., Principal for you) and give you a carry allocation based on that?
Recognize every firm may do this differently, I have seen it done in the past where if the Partners knew they were going to promote a Principal, they would give them the higher carry award commensurate with the next title up (in this case MD). Their logic would be that this person is going to spend the majority of their time deploying the fund as an MD and should therefore get the higher carry associated with being an MD even if they're not technically that title today.
I also recognize other Partners may want to take more of the carry for themselves and not be as generous and would therefore give this Principal a Principal level carry package. This would be a bit frustrating given the person would then need to wait another ~5 years for the next fund to get an MD carry package.
This is clearly less of an issue for those with deal-by-deal carry where individuals with carry can get allocated basis points for the investments made each year. As a result, there is no such thing as missing the fund cutoff given whenever promotion happens, these individuals can immediately get a higher carry award in the following year's investments.
Would love advice on how others have navigated this situation as for those with fund-level carry, it can put a lot of pressure on one to secure a potential promotion sooner rather than later so as not to miss a cut off in higher carry award in the next fund.
Based on the most helpful WSO content, securing a higher carry award before a promotion in private equity can be a nuanced process, and strategies may vary depending on the firm's culture and structure. Here are some key insights and actionable advice:
1. Understand the Firm's Carry Allocation Process
2. Proactively Communicate with Partners
3. Leverage Fundraising Timing
4. Demonstrate Value and Build a Case
5. Consider Firm Culture and Politics
6. Plan for Vesting and Timing
7. Alternative Structures
8. Be Prepared for Pushback
Final Thoughts:
Navigating carry allocation before a promotion requires a combination of strategic communication, timing, and understanding your firm's culture. By proactively engaging with Partners and demonstrating your value, you can increase your chances of securing a higher carry award in the next fund. However, be prepared for variability, as every firm handles these situations differently.
Sources: Confused about carry at PE Fund, No country for old I-bankers (starting a mid-career thread for finance professionals)
Typically when you get promoted, you get topped up with more carry in a fund commensurate with your level.
Eg if you had $5M DAW as a principal, you’d get an addl $5M DAW when you get promoted to MD to match the economics of others at your level. There is carry allocation left over in a fund for this purpose.
That makes sense. Any advice from others to the extent the firm doesn’t leave any carry reserve for promotions? Recognize some firms can issue more carry points which dilutes everyone but this is a bit harder of an ask than just having a reserve in place.
I will make it simple for you - just take whatever you are offered - you have 0 leverage anyway. The only moment is if you are laterally/starting a new role there.
And yes, they will screw you if it benefits them, and there is nothing you can do.
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