Long term comp difference between MM and MF PE?
I was looking at the recent PE compensation reports and there honestly wasn't as big as a difference in compensation between MM size funds and large cap size funds, even at the partner level. Yes MF was higher but the average wasn't significantly higher, and when you consider performance differences between those funds I'd imagine the comp differences aren't as clear cut. Can anyone with more experience offer any insight? About to recruit for PE and honestly I think I find MM more interesting, however everyone around me is gunning for large cap.
Way more beta at a MM fund. Most MFs are consistent 1.5-2x MOIC and you can be pretty comfortable on what your carry will be worth if you stick around. Cash comp is 25-50% better in my experience which is not immaterial but also not *huge* in the scheme of things.
With MM funds, there's always a chance of a couple of monster exits which could net you millions of dollars at once. This isn't exactly common but i know more than a few people who got massive payouts earlier in their careers. The flip side is the difference in cash comp and much greater risk your fund is a dud, has succession issues, fundraising trouble, etc.
The difference largely comes when you hit the VP level and up, as that is when you are typically cut into the carry pool (with some exceptions). The average carry allocation will be higher at a MF. The attractiveness of a MM comes into play when you consider the return profile of both. There’s a lot of research on this but it’s a widely held industry belief that it’s simply harder to outperform once you hit a certain size because there are fewer levers to pull (a company may have already been owned by several sponsors) and your target universe shrinks considerably. So, although you have to grind to make it happen, there’s a better chance you could really outperform across an entire fund in the LMM / MM fund, thus making your carry allocation more valuable and it’s likely a larger overall portion of the smaller fund size which is meaningful.
Generally you also share the pie with a lot of other people at the MF level. E.g. take Apollo’s $20b fund and imagine how many partners are digging into that plus an immense back office, vs. some random MM fund with one or two partners that invests in Florida Industrials or whatever with juniors doing a lot of admin/portco/etc so no need for a huge back office
Back office is irrelevant.. they’re not getting carry
This is true. Back office typically isn’t getting carry but the point still stands. Upper levels can take larger shares of the pie. I’ve seen some LMM funds where Partners have close to 40% of allocated carry. Pretty insane but at that early of a stage with a sole founder, they are the key man driving growth of the fund and want to be compensated as such. The risk is high but have seen some seniors at rapid upstarts make large windfalls from knocking it out of the park on the first few funds.
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