As the title suggests, I want to know how high carry can really climb for someone who joins a private equity shop and climbs up to the top becoming a managing partner without ever founding the firm.
Let's say I'm looking at a fund with >$100 bn AUM, $50 bn AUM, $10 bn AUM, and then $5 bn AUM.
I know this is extremely broad given varying returns but I'm interested in only ball-park figures, and we could even think about a decade's worth of earnings in the position after finally reaching it in each of the four different sized firms listed above.
For the very large funds like USD50bn AUM and above, honestly it's pretty much impossible to tell unless you're an anchor LP with full access to their detailed carried interest breakdowns, since the firms probably have multiple Managing Partners in charge of multiple strategies, and carry allocations can vary very widely from firm to firm. Some firms allocate carry to senior professionals across multiple platforms, some only give carry if you're actively working on the specific strategy, so it's pretty impossible to tell.
Assume a USD10bn fund size and a 2.0x gross return, at 20% carry you'll be looking at USD2bn in carry dollars. Partners at large PE firms will probably get single digit carry percentages at max, so you're looking at anywhere between USD20m to USD200m in carry per fund. Though note that carry percentages are usually a huge overestimate - not many megafunds return 2.0x gross, and 20% carry is also an overestimate since large LPs usually have side letters that reduce carried interest paid. Also note that by the time you get to Partner level at a sizeable firm, you'll probably be mid 40s at least so by the time you actually see material carry paid to you, you'll pretty much be retirement age. PE is a very very long game, especially if you take into account European carried interest waterfalls + fund life extensions. If you're unlucky you could raise a fund right before an economic crisis and the fund returns come below hurdle and you don't see a single dime.
For the smaller funds (think USD5bn AUM, or c. USD2bn fund size), I've seen non-founder Partners get anywhere between 8-20% carry, also depending on many factors. For smaller funds typically the founder is still there and is the Managing Partner, or the founder steps down but still has substantial carried interest share. So assume a USD2bn fund size and a 2x gross return, carry dollars will be roughly USD400m. So you're looking at anywhere between USD30-100m in carried interest per fund, also likely to be an overestimate.
Carried interest realisations are very very variable - would you still make lots of money and be in the 1% from salary and bonus alone? Definitely - but carried interest is not going to be huge and material usually until you're in the twilight years of your career, unless your fund outperforms significantly and you're lucky enough to negotiate American carried interest waterfalls (usually possible at smaller funds, larger funds get pushed by LPs for European). Also don't forget about GP commit - assume a 1% commit for a USD2bn fund, and you have 15% carry allocation - your GP commit would be USD3m, which is a lot of fucking money and you would be paying in a substantial part of your bonus over 5-6 years.
Incredible answer, thank you for all the details.
I won't bury the lede, I was curious about Peter Nolan. The guy was a junk bond banker with Drexel who then went to Leonard Green where he became a managing partner and now is a senior advisor.
He has his own family office so I assume he's close to or is a small billionaire, so I wanted to know if this can happen to anyone who sticks it through for the long haul in PE at a decently sized firm and plays the game right or if he is exceptional even among PE partners.
Definitely possible for him to have very sizeable net worth especially if Leonard Green's funds pay carry deal-by-deal, and he invested money outside of Leonard Green as well - same reason how/why Jon Gray is a billionaire too I guess. You'd have to get into a PE firm at its early years, scale it up very very quickly and hold substantial carried interest economics as well as preferably management company economics.
Management fees are how Partners get rich especially if you increase fund sizes quickly, a USD5bn fund nets you USD100m in management fees alone a year. Deduct costs and everything and ManCo owners probably will get a couple million a year still!
Yes, those management fees are insane.
I've seen some companies with like, 30 finance employees, and they manage >$50 bn - that is so much money coming in per employee, guaranteed, just for being a custodian to their money having not even proven they can do their job yet.
You're just raking in the money at that point, aren't you?
Definitely, PE firms always face the pressure to raise money while they can so even if returns come below par they can still feed themselves - very logical thing to do, one bad fund can fuck the firm over if you don't have a large enough AUM
Above when you said sizeable, do you mean $1 bn +?
Also, would this man be considered an outlier?
Don't think there's a way to know for sure, but there are few PE billionaires around. Outside of the founding Partners of the megafunds (KKR, Blackstone, Apollo, Carlyle types), don't think anyone else really has a chance to push that billion mark. Some venture guys with huge 20x type fund returns might be close to that ballpark? Even then it might be a stretch.
If I were to guess, Peter Nolan would maybe be in the USD300-800m range? Though definitely no way to know for sure. Even then, Peter Nolan is a massive outlier - I would say most PE partners would likely end up with an 8 figure net worth by the time they retire. Maybe low 9s if they're lucky/good.
Fascinating.
I'd guess at the upper end of that range - his family office states they invest at check sizes from $15 - 150 mm.
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