I am curious about some of the PE professionals (associate/vp/etc) on this board and the returns they have been able to achieve by investing in their firm's fund. You see plenty of discussions on this forum about PE associates being able to invest alongside their firm, but not a lot of talk about the results of those investments. As an outsider looking in, having a chance to invest in your firm's fund seems like a pretty great opportunity, given you are confident in the team/strategy/etc.
How much did you invest? Did you have to take that money out of your future bonus/etc to fund the investment? How long until you were able to receive your investment (+/- any profits) back?
What returns did you achieve over x time period? What was the experience like? Were you able to beat the general market? Would you do it again?
the typically return trust funds for your children
as a coinvestor you're just an LP but on a carry-free and mgmt fee basis. you don't participate in any GP economics, but you participate in LP economics on favorable terms. put in 100k, lever 3x = 400k basis, assume 2x gross moic, so 800k returned, less 300k leverage (ignoring interest), less 100k initial equity, = 400k profit
all i know is it makes you a fuck ton of money
i'm aware of a back office person at kkr who was able to coinvest for a long time and is worth mid to high 8 figures due to those coinvestments. their salary isn't even that high and they are now rich as fuck
There is a lot of good information in this thread but it feels scattered. I’m going to try to sum everything up:
There are multiple different ways that someone can co-invest. The one that is often discussed is the GP capital commitment. This is a mandatory amount that must be invested, is stated to LPs when raising the fund, and generally paid by exclusively by the individuals who have carry in the fund. You may sometimes hear that the GP capital commitment is 2% of the fund. This means that if a fund is $100M, the employees at the PE firm need to put up $2.0 million. Sometimes leverage is offered to meet a capital commitment, sometimes it is not. Often times it is VPs / Principals who have a significant capital commitment but have never received carry payments and thus need the line of credit to meet their obligations. In my experience, the line of credit is offered through a bank. The interest rate you get on the loan depends in part by whether the line of credit is backed by the PE firm. If the PE firm is willing to stand behind your personal line of credit, you can get a great rate. Back when interest rates had bottomed out (~2016), my interest rate was something like 600 - 700 bps and I had no backing from my firm, although I never ended up needing to draw on the line. Because this is provided by a bank, it is obviously a full recourse loan. Furthermore, according to my particular bank, they expected for the loan to be paid off steadily through the years (with salary and bonus) as opposed to my waiting for a big liquidity event to pay it off in full.
Another form of co-invest is when the firm creates a “sidecar” investment vehicle, to co-invest alongside the fund. This vehicle is setup at the beginning of the fund and commitments need to be made in the same exact way that an LP commits, meaning you are obligated to make your Co invest, it isn’t an option. This side car vehicle can include junior employees, friends of the firm (such as portfolio company executives, or sometimes investment bankers), or others to co-invest in all of the fund’s investments. Note: Yes, I said investment bankers. Yes, this can be a conflict of interest. Yes, it happens.
A third form of co-invest is deal-by-deal. Some firms permit their employees, particularly junior members of the deal team, to invest directly into the company. Sometimes a special investment vehicle is formed for each deal and sometimes the individual themselves is an actual shareholder. Sometimes the PE firm will provide leverage to the junior employees. This leverage is almost always recourse. As is the case with any concentrated investment, if you’re only invested in 1-2 deals as an associate, there is a chance you can get burned if those particular deals go poorly.
Importantly, ALL of these forms of co-invest have no direct fees attached to them. You aren’t paying a 2% management fee and there is certainly no 20% carry. I cannot imagine any scenario where there would be a preference or hurdle rate — that would essentially be putting the LPs investment ahead of yours — which would be unusual for a direct investment (as opposed to carry).
What this means is that your return for any given deal is going to be equal to the fund’s gross return, multiple by leverage and less interest paid (this is a simplification but it is largely accurate). Like any other aspect of private equity ... if the deal goes well, you will do well ... if the deal goes poorly, you will not do well.
The original poster seemed to want to get a feel for whether or not people have benefit from co-invest schemes in the past. The best proxy is to look at gross returns on a deal-by-deal basis and amplify those by the effect of individual leverage on the co-invest. If a $100M fund returned $200M gross (a GAIN of 1.0x or $100M), the co-investors leveraged at 50% debt 50% equity made double that (a GAIN of 2.0x).
Finally, in terms of my personal experience, I have only ever invested through a capital commitment and never with any personal leverage. While none of the funds is fully liquidated, the best fund grossed over 3.0x, another over 2.0x, and the others ... we will see how much havoc COVID causes in the portfolio...Importantly, while co-invest has done fine, it is nothing in comparison to the carried interest payments. Because both are tied to firm performance, unless an investment professional is putting up insane co-invest amounts, their co-invest payout is never going to come close to their carry payout.
Hopefully this helps clarify things.