“Private Equity” Principal Investing?
Thoughts on firms/funds who are structured to have majority in-house capital deployed? Have an offer from a firm that has public & private equity teams (offer from private) who intentionally keep outside capital low, even when those extra dollars are readily available. Current fund is ~60% existing firm capital. Investing style is not buyouts - curious as to what others perceive pe principal investors as in comparison to traditional buyout shops. Note this is not a family office.
Quick thoughts:
- Pace of deployment. This is often slower because a place like this isn't under pressure to deploy so they can justify going back to market to raise the next fund. That generally means more thoughtful deal analysis.
- Compensation. The performance-based model can be different. Generally a GP or employee commitment enjoys fee-free treatment. (If you aren't familiar, the members of the GP have to contribute in aggregate anywhere from 1-5% of the target fund size themselves. Strongly-performing funds often get to the 10-20% range, even with multibillion-dollar fund sizes, because everyone there loves piling their money into (i) a high-performing strategy that (ii) is something they have a measure of control over where (iii) they enjoy gross performance that doesn't have fees netted against it.) You can see that if 60% of the asset base is principal capital, it gets tricky to figure out how the entire team gets 'carry'. Is carry available only on external capital? Are there different carry structures for external capital versus internal? (I saw one once where LP capital had market fees and principal capital had a 5% performance fee that was divided among all investment staff that were not partners.)
- Career longevity. Some places like this very much value continuity in team composition, and as a result, work responsibilities look different than they do at traditional shops. You can see how this makes sense. For someone who is leaving in two years it doesn't make sense to make the apprenticeship type of investment you do in someone who's there with duration. So a place like this may start getting you board exposure early (which everyone would value), or some things that I have seen younger people fail to recognize the value in like human capital work in the portfolio, document drafting, sourcing, thesis creation, and similar.
I'm gonna run now but I hope this is helpful. You can PM me if you want to discuss it in specifics in more detail. Congrats on the offer.
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