VP Carry Commitment
At lmm/mm pe firms, do professionals at the VP level have to commit their own capital to the fund to receive carry, and if so what % of the overall fund is it.
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At the 2 PE firms I've been at anyone (including associates) who is given a carry allocation will have to make a contribution to the fund. The size of the contribution will vary due to the fund size, whether if its' a 1st fund or 3rd/4th fund, and the amount of carry you are allocated.
I think GPs are generally responsible for putting up ~2% and the contribution amount is based on your % carry allocation.
If GP's are putting up 2% for the fund but are taking the lion's share of carry, what commitment would you expect for 100bps carry allocation?
It depends on the fund size. And if you are getting carry, you are part of the "GP".
For example, a $1B fund, the GP commit is $20M. If you get 1% of the carry, then your commitment is $200k.
Yep this is the most common that I've seen, where the GP commit is pro rata to carry allocations. Typically loans are offered only to people below a certain level.
Carry ranges can vary a lot depending on stage and size of fund.
I’ve seen 10% of carry $ and the fund will give you a loan
Hellman Friedman does this^
Yes, but they usually have extremely cheap debt lined up to finance this for you.
Interestingly, the 10% of carry $ (mentioned by emergingmarket above) lines up with "GP commit pro-rata to carry" (mentioned by NuclearPenguins above) using the 2x MOIC methodolody, considering 20% carried interest and 2% GP commitment.
Example:
Carry -- $800M fund, 2x returns = $800M profits; * 20% carried interest = $160M carry; 3% carry = $4.8M carry
GP Commitment -- $800M fund * 2% commitment; $16M commitment; 3% pro-rata commitment (per carry above) = $480K commitment... which is also in line with the 10% of carry $ from above, so they're equivalent
Example numbers are high, but I have to imagine many post-MBA VPs don't have enough liquid to do much more than $100K, so likely to be debt-financed
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