What is the deal with Carry, and how to get it?
I've read numerous comments on this site over the last couple weeks that have confused me about "carry;" some say that they have accumulated millions in carry by their early 30's, while others have said that it's nearly impossible to get carry at a PE fund because partners don't want to share it and, thus, kick analysts/associates out after a couple years so they can just keep re-loading with cheaper, younger talent.
So which is it? Is it really that difficult to get carry at PE places? Also, do you have to negotiate for it BEFORE you join? Seems difficult, especially if you're recruiting as first year IB analyst -- that at age 22, fresh out of college, you're demanding carry at this PE place when you've only got a few months of being an IB analyst under your belt? Or do some place "do the right thing," and -- after you've added value there for five years -- agree to give you carry?
Everybody gets carry at the VP level; if you don't, you're probably not working for a legitimate PE fund. Almost everybody gets carry at the senior associate level if it's a "post-MBA" position. Almost no one gets carry at the associate level with the exception of a few funds, and even then it's very small.
You can negotiate at the VP/post-MBA senior associate level somewhat within a band, but there is an industry standard of what it is based on your fund size; this is done before you join as part of your offer.
No one will negotiate with you as an associate; either the fund has a history of giving it or not, so you can forget thinking about it as an IB analyst.
There are a lot of threads on here about carry math you can look up but it is example is: 1) PE fund of $1Bn 2) 2x return on the fund means you generate $2Bn total value, so $1Bn of profit 3) As a PE fund you usually get 20% of the profit, so $200MM 4) Say you get granted 1% carry, that would imply you're entitled to $2MM of carry, from that single fund. 5) Carry usually vests over the life of the fund, which could be anywhere from 5-10 years; vesting period set/negotiated beforehand. So divide your total carry by the vesting period to get an "annualized carry" 6) Note that if the fund does not meet its hurdle rate, usually 8%, no carry will be generated
Simple enough?
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