PE Pay vs Private Credit Comp
What are the differences in pirvate equity compensation vs private credit assuming both are at MF? Going up the ladder?
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This questions does not allow for a boiler plate answer, as it really depends on the fund structure, firm set-up and strategy. While management fees are lower in credit, you also need fewer investment professionals, have a lower gross/net spread (e.g. fewer expenses as diligence is more limited) and usually have a higher pace of deployment (again due to shorter diligence phase). In highly simplified terms, cash comp is very similar (can speak for one of the MFs at least), but there will be a difference in carry DAW as the differential in return (1.3-1.5x MOIC in Credit vs 2.0x in PE) and spread in GP carry share materializes (1.0-1.5%/10-15% in Credit vs 2/20% in PE).
Any idea of carry dollars for say a principal at a UMM/MF (Say $3 billion mezz fund, a $5 billion DL fund, and a $10 billion PE fund). Assuming PE fund hits a 2x. Would be helpful as I am trying to decide between PE vs PC for long-term career. I assume credit carry is easier, more consistent to hit, but may not be much (relative to PE)
What does DAW mean?
I'm guessing dollar at work?
Wouldn’t the same reason for similar junior comp go for senior too? Less senior to split the carry pool for example. Private credit a also do a lot more deals so more fee income.
Yes and no. You are right, ceteris paribus you should receive more bps carry but it cannot make up for the differential. Let's look at some highly simplified illustrative numbers.
PE:
Credit (Example 1: senior debt strategy, same pace of deployment vs PE and same carry bps):
Credit (Example 2: higher returns due to blended returns incl. junior / opportunistic debt, 1.5x pace of deployment vs PE and 25% higher bps):
Even in the rather aggressive latter case you are still ~at "only" 2/3 of carry DAW in PE. Would expect VP /Senior ASO will likely be closer to 50% of equivalent rank in PE, disregarding potential higher MOIC the PE strategy could yield in a very good vintage. Again, this is an overly simplified calculation and one should note that Credit pays Carry more regularly / safely due to where it sits in the cap stack and as is clipping coupons along the way. Also, on average your WLB will be better (there are of course exceptions to the rule) and comp potential is still outstanding.
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