Promote Question
If a RE firm raises a fund from a group of investors and invests that money as GP alongside a larger LP, how does the RE firm itself typically get paid promote? I understand the basic promote for the GP/LP where the GP and LP are pari pasu up to a pref return and then the GP gets a bigger split of excess returns, but how does the actual RE firm (i.e. employees of the company, not investors in the fund) get paid promote and how is it calculated?
can somebody else answer.....
Getting spoon fed is too hard I guess.
That promote comes from 1 or 2 places.
1st place: GP partners with LP; deal has some form of promote based on the success of a project (a waterfall); that project generates a promote to the GP; GP shares promote with employees in some way shape or form (basis points, flat $ amount, etc.). I call this the Project Level Promote.
2nd place: The GP is promoting the GP investors (ig. the GP has a GP Fund). After a successful project exit, the GP runs an independent waterfall from the LP waterfall. The LP investors (normally) have no idea what this waterfall is, because that's the business of the GP and the GP investors. I call this the GP Fund Level Promote.
It's common for the GP investors to be double promoted, one at the Project Level with the LP, and then another at their fund level as being an investor in the GP. Sometimes the GP offsets this double promote by sharing some of the Project Level Promote with the GP Fund Investors (ig. the promote they earned off of the LP).
So lets get back to basics. If you are an employee, the likelihood is that you get paid something called a salary. You see, you trade your labor and skills and time for a fixed sum of money. You get paid this money by your employer. For most of us, this check comes every two weeks, or twice a month. That is called a pay period. Now, I know this is complex stuff, so feel free to read back through that a few times before we go on.
A promote, as REPESailor2020 has mentioned, is what a GP gets for successfully executing their business plan. The LP pays this by taking a lesser portion of the cash flow over certain hurdles, as a way to incentivize the GP to do their job well. Guess what word we haven't seen yet? That's right, employee. Because guess what? This isn't your local grocery co-op. The partners in the GP are taking on all the risk of the deal, while still committing to paying the employees at their company. Thus, the employees get their contractual wages. Maybe even a bonus, which is a reward for doing an exceptional job. Since the employees are guaranteed pay and take no risk, they don't get a promote, except what the partners may choose to allocate. Say it with me: employees aren't entitled to a promote. A good maxim to keep in mind is that the people taking the risk, get the reward. The higher the risk, the higher the corresponding reward should be. Apply that to most things in your professional life and compensation structures will make more sense.
TL;DR - you won't learn a damn thing in school if you come on here demanding answers to simple questions and then accusing the person giving you that answer of not answering the question to your rather poorly phrased and imbecilic inquiry. You got an answer; if you don't think it answers the question, then you've asked the wrong question or fundamentally don't understand the subject matter. Incredibly, almost uniquely, I'd say, you've managed both of those things.
this seems unnecessary
What a roller coaster of a thread!