MFPE Partner Carry
Here is my directional math on total partner compensation. I'd welcome any pushback. Obviously this is simplistic construct:
- $20B fund growing at ~18% CAGR is valued at ~$50B after 5YRs or ~$30B net profit
- Caveat: Even if IRR lower, sponsors can hold assets longer to hit similar MOIC
- 20% carry applied to ~$30B net profit yields ~$5B sponsor carry
- Every 100bps carry within fund worth $50M ($5B * 1%)
- Average partner receives 100-250bps in fund carry
- Paper comp should be $50-$150M in aggregate across fund life
- If economics stack across multiple funds, "paper" carry can be substantially larger
Yes - there are many considerations such as (1) lower realized returns, (2) lower partner carry allocation, and (3) long carry payout timeline, but compensation seems to be high no matter how you adjust input assumptions
For a $20B fund, take your MOIC return to 1.5x to 1.8x over 10 years (cash realizations can take longer than that btw). MOIC is typically calculated after mgmt fees, so you have to net that out (ie a 2.2x gross MOIC over 10 years equates to 2.0x MOIC for calculating carry). Most of them are public now as well, so 50% of the carry is going to public shareholders. Assume a fundraise every ~5 years or so, so you can do the math for what someone who makes partner late 30's would have in carry by the time they're 50 years old. You can assume if they retire in early 50's, they probably don't see full payout of carry until they are near 60.
Your math is right if a 20bn fund can achieve a 2.5x MOIC net of mgmt fees but to my knowledge that has never happened in the history of private equity. No fund above 15bn has even breached 2x DPI (according to pitch book).
250bps might seem like a lot for such a large fund or am I wrong?
250bps feels like a lot, but not unreasonable, for a mid-level partner at large fund:
This doesn't take into account how GP stake sales might impact carry pool. Private PE MFs typically have GP ownership mostly preserved, but this is obviously a different dynamic for TPG / BX / KKR etc.
Fair enough, so applicable to the private big funds club so HF/CDR/LGP/Veritas/GTCR etc
Way lower than that. On a 2x return (which is optimistic) partners that are not in the GP at my MF get allocated around 15-20m. 70% of the carry pool goes to the GP, this is for a private MF hence the best economics on paper.
What % of partners are in the GP
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