PE megafund compensation policy for forgone unvested carry
To the experienced PE guys here – what are the latest market practices regarding compensation of foregone unvested PE carried interests by the new megafund PE firm you join?
I’m interested in actual data points when joining a megafund based in the US or Europe, for a VP/Principal position, when unvested carry is $1m or above.
What I’ve heard so far is that the new firm will indeed compensate for the forgone carried, however the modalities can differ regardingand settlement method.
Valuation – Was the unvested carried valued on a money-at-work basis (i.e., assuming the fund will return 2.0x net to LPs)? Or on the basis of an expected final DPI outturn we need to agree upon, based on the extrapolation of the current TVPI, the GP track record, etc.? I’m ruling out a valuation equal to current TVPI only, as for a relatively new fund that would still be at cost or below the hurdle, this would mean valuing the carried to $0, which is not our scenario here.
Settlement – Was the settlement via (i) carried interests in the new firm’s fund(s), subject to a similar vesting horizon than the unvested carried, (ii) via company’s stock options or similar instruments for listed funds, (iii) simply via cash, potentially in multiple instalments subject to the continuation of the employment contracts over a given number of years, or (iv) a combination of the above?