Carried Interest Language in Contract - is this normal?
I've been offered to join a fund as an Associate and the offer I received included 5% of the carried interest in their third fund (they are still fundraising and this will likely close within 4-6 months with the first close later this year). I've now received my contract and it doesn't seem to reflect this. Here is some of the language that has been included that relates to the Carry:
"you may be invited in the sole and absolute discretion of the Company to participate in carried interest" and that "You acknowledge and agree that you have no right, expectation or entitlement to participate in any Incentive Scheme" and if I am invited and do participate "your participation will remain at all times discretionary and will not constitute a contractual entitlement under this Agreement unless otherwise specified in writing". Also if my employment is terminated, it "will give no rise to any claim for compensation"
I'm unsure what is standard if a fund has not been closed. Would you push back on this wording? I am dealing with the Managing Partner directly so I want to be careful with my wording. At the same time, I do feel like there should be an agreement in place that if I pass my probationary period (6 months), then I will be invited to the carried interest and the vesting period be specified. Thanks so much your advice here
I don't know if this is typical language but man does that sound wishy-washy. I would for sure try to respectfully pin down some more concrete verbiage.
they are essentially saying, your bonus is 100% discretionairy...which means it all boils down to a) do you think you can perform to earn that bonus, in the eyes of the partners b) do you trust the partners of the fund to not screw you over
You may need to provide a little more info on the fund (AUM, size of investments, region), but 500bps of carry is unheard of for an Associate in private equity, even for small first time funds focused in lower middle market, at least in the US. (I'm talking true LBO shops, not growth shops that I don't have any real insight into). And given it's how unlikely what the verbal commitment amount was, I'd certainly want something in writing.
Thanks all for your comments. I agree it sounds very wishy washy so I spoke to the Managing Partner on the phone earlier today. He was reluctant to put it in the contract but agreed to send me a "side letter" via e-mail confirming their intentions - here is an excerpt:
"...I can confirm that, after your probationary period has ended, we would intend to give you a participation in the carry for [fund name] of around five per cent."
I am thinking I will push back on Monday asking for the above to be to be included in my contract but with a specific % (no "around") + the only condition precedent to being invited to the carried interest is passing my probation period + once part of the carry, I will follow a 'fair' vesting period. Does this sound reasonable?
For some added context, the AUM is EUR200M. This target of this 3rd fund will be EUR100M. It is a growth stage (Series C) equity fund based in the UK investing into technology companies across Europe with a typical cheque size of 5mm-10mm (does not lead a round). There are only 3 people in the investment team today: 2 partners who have been there for 10 years+ and 1 at the investment manager level. They all are in the carry at the moment. It has a family office feel but the fund follows a traditional LP GP structure.
There should be a carry letter with a specific percentage listed in specific funds which vests after a certain amount of time at the firm. Otherwise it's not real carry and just a discretionary bonus which they call carry.
I'm not sure what negotiating leverage you have, but if you are on the fence between this and other alternatives, I'd not sign until this gets resolved.
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