What happens to carry if you leave
Can those who are mid to senior levels in PE describe what happens with your carry if you leave? Say you decide to join a rival firm, are deals that you've worked on forfeited? What about deals that have a successful exit before you leave, are you still paid on your carry for that deal?
It will depend, but generally they will screw you out of it as hard as humanly possible. That will bury legal concepts that favor them in your legal docs and if you try and fight, they have an army of lawyers that you don't have. Underrated concept that makes hedge funds more attractive
Not sure I agree with this... it's pretty standardized that you keep your vested carry, which is vested over a simple straight-line term, and forfeit any unvested carry. It's also not at all expensive to have a lawyer review your contract before you sign/start, if you choose not to understand your contract until you leave that's on you.
Don't pretend that hedge funds don't also structure contracts to be extremely advantageous to them - they also use the exact same vesting concepts to make it hard for people to leave
This is all spelled out in a contract - you get vested carry, but you forfeit any unvested carry. Vesting is less about deal exits and more about earning your interest in the fund (so if your vested carry has an exit down the road after you leave, you will still get money)
Unvested carry is forfeited, ASO/VP level is usually out of luck but if you are very senior your new firm will buy it out, often with additional carry in your new fund
Removed
Huh? It’s laid out clear in the carry plan award letter which is legally binding. They can’t do that.
Huh? You realize how flexibly it's worded
Carry Agreements typically give the GP an option (at their sole discretion) between the following if an employee leaves or is terminated (not for cause):
Sadly Options 2 and 3 are considered 'market' where as I think most people thinks option 1 is how it works. Long story short, if you leave before your carry is 100% vested then you will get FKD.
This is a good explanation but also a good reminder for everyone to 1) read your contract and 2) spend the $100-200 to have an employment lawyer read the carry docs and help you understand them before you sign them.
If you leave, what happens with your carry should be crystal clear to you before you even give notice. It's only the employee's fault if #2 or #3 is in your contract and you think it's #1 and are surprised by the golden handcuffs when you try to leave.
You think an employment lawyer costs $100-200/hour? Lol. Besides, not like you're going to be able to negotiate it unless you're a partner with some clout
You can absolutely get a consult with an employment lawyer for $200. Source: I have done it at least 5x.. every single time I've signed an important contract. It's foolish to not get legal advice for something like carry which is worth many times what you'll pay for the consult.
Agree on it being hard to negotiate but it's absolutely on the employee to understand what happens with the carry and no one should be surprised by getting "screwed" if it's in the contract. If the docs screw you, just keep recruiting.
thanks for the great explanation. To clarify on the original post, does this mean that at more senior levels (director, VP, etc) that there are no special clauses for deals that you led or were working on? Its basically just when that particular fund is paid out (option 1) or you are bought out (option 2,3)?
I'm not familiar with carry negotiations. What would be considered 'market' for some at director or VP level? How hard can you push on this?
Typically carry is fund as a whole, not deal by deal. And at the VP / Director level you can't negotiate at all - take it or leave it
You lose your unvested carry (obviously), but then it is fairly common to have competitive language where you forfeit x% of your vested carry if you join a competitor. At my firm, it's 50% (with a very broad definition of what's competitive)
True. Rule of thumb, you get Fd if you leave.
The way it’s structured for my firm:
25% vesting per year.
If you leave (quit or fired) before fully vested, you forfeit any unvested carry
When you leave, you lose 50% of any vested carry
After you leave, if you compete, you lose 50% of remaining carry
Remaining carry can be bought out at FMV
What's the point of vesting carry, if you lose 50% when you leave?
Seriously. I’ve seen some pretty painful vesting forfeiture terms, but nothing as bad as those discussed in this thread.
Theoretical question: if 50% of vested carry is forfeited upon leaving, is it really even “vested?” The whole concept of vesting is that you get to keep it when you leave!
I can somewhat see the argument of forfeiting some vested carry upon competing, that is common, but not upon simply leaving (as a good leaver).
As for having a lawyer review your carry contract prior to signing, I’ve found that most lawyers don’t have a very deep appreciation for the way carry truly works. They are good at commenting on general employment related things, but they are less thoughtful in PE specific issues.
I actually have/do explain carry provisions to a number of my clients, but only so they can appreciate what they are signing up for — not so that they can actually negotiate the terms. They have all the leverage but you can always find another job or decline the offer. I’ve personally walked away with incredibly punitive carry terms as one of the primary reasons. Some people aren’t even given the relevant documentation from their firm — they just get a side letter with a few key terms but a complete lack of detail (really important detail)!
Lastly — on the firm buying out your carry — this is usually for the capital commitment as opposed to the carry.
Pls name the firm you work for cause it makes zero sense to forfeit vested carry unless you go to a competitor...it isn't actually vested if they can take it back
Wtf includes fired folks? Founders and partners can just screw you at principal+ promo
Gotta know the name of that firm so everyone steers clear.
False alarm. Vesting schedule is structured differently than what I first described
Payments on the carried interest are made in full, regardless of how much has been vested. But vesting maxes out at 50%
0% year 1
25% year 2
25% year 3
This is how someone’s carry gets effectively cut by 50% if leaving, because even though they were receiving the full amount while at the company, because they never vested, they forfeit the remaining 50%.
Then, another 50% cut if there’s violation of the non compete
Quick question on non documentation. If young firm releases (without cause) an early team member, but has provided NO carry docs nor explanation of capital contribution treatment and an agreement providing clear terms, and based on executive conversations has not even drafted final versions of these documents...I would assume the employee can contest this complete lack of information and ignorance of timely, prompt investor information rights?...leading to better terms or a negotiation right
Consider the case in which the employee was onboarded with awarded deal by deal carry outlined in offer letter, verbally, email, and has also contributed about 20k in the fund.
Also ignore the possibility that due to no papers being signed, the company can pull everything. A few lawyer consultations have been that this cant be pulled off by that firm. Employee-friendly state too.
Many harsh realities in the legal world. But I have high hopes...to snap back to reality, your thoughts will help form a better opinion hahaha
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