Principals / VPs - Have you guys read your carry related docs?
Question for those who receive carry and have signed definitive docs:
Have your firms shared with you all definitive documentation on your carry, including the underlying LPA / LLC agreements that you are admitted to as a Class b member? Reason I ask is, all of these LPA / LLC agreements have obligations placed on the Class b members (i.e. the employees / non-managing members), i.e. non-competes, non-solicits etc, and you just have to sign up to them with very little room to negotiate (i.e. a megafund won't let you see or negotiate the main LPA which hundreds of employees have signed up to...)
Many of my peers (including at large funds) get offer letters when they join with a rough indication of dollars at work or number of points of specific funds in which they get carry, but now that I'm seeing some of the actual terms, there are a lot of puts and takes around which the managing members of the Limited Partnership / LLC can repurchase or have you forfeit your carry. Curious to what extent the mid to senior guys here have seen all their underlying docs, and any egregious terms that have caught your attention / how you dealt with them? I've been with my new fund for a month now and am having to re-negotiate some points (i.e. anti-dilution, not getting "primed" in the distribution waterfall etc).
Thanks
My experience is in the lower middle market so it may not be relevant, but I’ve absolutely had access to the full suite of carry-related docs at each of the funds I had carry in. You have essentially no negotiating leverage so it is really hard to get a document changed, but you may be able to negotiate a side letter with specific provisions modified or waived. I absolutely wouldn’t count on it — most documents are ‘take it or leave it.’
Also, talking about Class B or whatever members on this forum is unlikely to help you. The LPA / LLC agreements vary pretty materially from firm to firm so the structure is unlikely to be the same. The concepts are the same, but the idea of what constitutes a Class B member can be totally different from firm to firm. Same with all the terms, provisions, definitions, etc.
As for the terms themselves, they are usually very, very firm employer friendly with little to no room to negotiate. There are some specific things you need to make sure you understand, such as treatment of vested carry upon termination, treatment of capital contribution upon termination, buyback provisions, non-competes / non-solicits, dilution, etc. Most of them don’t matter as long as you don’t leave the firm, but it can be pretty brutal if you do.
What do you find to be typical for how vested carry is treated upon termination?
There's a huge range. Most friendly is that you vest straight line over 5-10 years and you get to keep whatever is vested when you leave. Less friendly is that when you leave, the firm buys back your carry at a valuation they determine to be market. Least friendly is that when you leave, the firm buys it back from you at whatever price they feel like, likely a huge discount and whatever they feel like they can get away with that won't cause you to sue. There can also be a mix of these, like if you resign it's the less friendly option but if you're fired for cause it's the least friendly option.
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