Vice President Fund Carry/Equity
Hey All-
I have been negotiating an offer with a PE firm to come on as a VP. I actually have worked for this same firm before, left for a few years, and now they have roped me back in. They are currently in the process of raising their second fund (sub $500mm target) and since it is still small, my comp is likely at the low end of the PE VP spectrum.
Question I have to you is, do VPs typically receive carried interest in the firm and if so how much? Given the high level of risk around the fundraising, I would think this could be something I can push for to make up for the slightly lower than average salary.
Thanks!
VP Private Equity
Certified user @TheBigBambino" weighs in on carry in a private equity firm at the vice president level.
Yes - virtually all VPs have carry. Typically if you took the carry and split into a 100 point scale you will get 1% - 2%. It is possible it vests as well (i.e. - over 5 years for instance)
Given your fund size, you may even be able to ask for more then that, especially if there aren't many VP/Principals/MDs already there.
In all seriousness, I would be extremely hesitant of working at a firm that doesn't include it's VPs carry participation.
One way to figure out how much to ask for is doing a method one of the users above did by allocating a annual dollar amount.
For example, at a $1B fund, a VP should expect about $750k - $1.25M in annualized compensation based on fund performance. For example
Based + bonus $375k
Fund size: $1B
2x return
Total Fund carry = $200M
VP Carry participation = 1.5%
VP Carry payout $3M
Average hold period: 5 years
Annualized Carry Payout = $600k
Annualized total compensation - $975kGiven the number of variables above, I've see people do the calculation a number of ways. I choose a 5 year period as that's the active average hold period of a deal and a decent firm should raise a new fund at least every 5 years.
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Yes, VP's typically receive carry. There is a Glocap report that indicates 95% of post-MBA level professionals receive it. The range varies widely - anywhere from $300K-$400K carry dollars at work, all the way up to $1.5mm carry dollars at work for a brand new post-MBA professional (some firms call this senior associate, some call it VP) at a "small PE firm" (which Glocap classifies as $0 to $750MM AUM). The variance is due to a number of factors, including size of fund, number of professionals at the fund, location, precedent, generosity of the partners, etc. Given you were already at the fund, I would expect you to have some success negotiating this point. They know your work product vs. taking a risk on a brand new hire. Most firms will pay up for that.
Yes - virtually all VPs have carry. Typically if you took the carry and split into a 100 point scale you will get 1% - 2%. It is possible it vests as well (i.e. - over 5 years for instance)
Given your fund size, you may even be able to ask for more then that, especially if there aren't many VP/Principals/MDs already there.
In all seriousness, I would be extremely hesitant of working at a firm that doesn't include it's VPs carry participation.
One way to figure out how much to ask for is doing a method one of the users above did by allocating a annual dollar amount.
For example, at a $1B fund, a VP should expect about $750k - $1.25M in annualized compensation based on fund performance. For example Based + bonus $375k Fund size: $1B 2x return Total Fund carry = $200M VP Carry participation = 1.5% VP Carry payout $3M Average hold period: 5 years Annualized Carry Payout = $600k Annualized total compensation - $975k
Given the number of variables above, I've see people do the calculation a number of ways. I choose a 5 year period as that's the active average hold period of a deal and a decent firm should raise a new fund at least every 5 years.
Just to add to your post:
On vesting, great point - I have never seen or heard of a carry award that does not include a vesting schedule. Vesting can vary widely, anything from 5 years straight line, to 6 year cliff (you get nothing if you leave before 6 years), to weird 0/0/25/15/15/15/15/15 structures and the like.
On translating the carry award into an annual number, I think most people look at it as at least a 7-8 year timeline. Typically, you have 5 years to invest the capital and 5 years to harvest. If you assume a 5 year hold, you are not getting your first carry check until 5 years after the fund begins investing. The rest of the checks would likely roll in over the following 5 years.... so on average 7-8 years. I typically take a more conservative approach and spread the carry over 10 years. Moreover, I think a 2x return is an appropriate assumption. I know some people look at 2.5x, but, again, I prefer to be conservative on how I look at this.
Heidrick & Struggles 2015 North American Investment Executive Compensation Survey
See slide #10:
http://www.heidrick.com/~/media/Publications%20and%20Reports/2015-North…