Carry comp MF vs (U)MM
Does anyone have insights on how carry programs compare across fund sizes and how they scale with the size? Is carry compared in percentage points or actual $? In other words, will the guy working at a $10bn fund get 10x more $ carry than the guy at a $1bn fund (assuming all else equal) or will he simply get a smaller percentage points of a higher $ carry (also because the larger fund has to feed more mouths)?
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2% carry at the VP level is unheard of at UMM/MF haha...more like 0.125% if you're lucky
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VP carry is nowhere close to 8 figures in most megafunds.....
This is speculative but something I've been thoughtful about: I think it's closer to 1% and likely below based on cash equivalent targets (more so the more mature a company). Once upon a time I put together a spreadsheet for personal interest on this, but say you have a $10bn fund with 15 MDs, 10 Directors, and 10 VPs, it's tough to imagine VPs commanding 20% of the carry pool.
What percent of carry can a VP reasonably expect to earn?
5-15 bps lmao
I’ve heard to expect at or slightly above your cash comp in equivalent carry
So how should we think about total carry allocation? Does literally 100% of it get distributed to deal team(s) (i.e. any corporate costs are covered via mgmt fees)? What's an indicative split at partner / MD / VP level?
Thinking back to larger funds likely have more people hence carry needs to be split across more people - which would go back to a similar $ comp? And the sweet spot would therefore be to go for highest AuM / Fund size per employee?
Obviously not all funds approach this the same way, but most people think about vp carry in terms of dollars at work, not basis points. While larger funds provide more dollars at work (in general) the relationship is in no way linear. Just like an associate at a 10b fund will in general earn more comp than an associate at a $1b fund, but not 10x more, a VP at a bigger fund will generally have more $s at work, but not in proportion to AUM or fund size.
In my experience, 1x base and bonus for 3-4 years in dollars at work is in the ballpark for a VP, but you see plenty of variation in that metric.
Thanks a lot. Just to confirm your last point, DAW should be ~3-4x total cash comp? So assuming market being around $500k-600k total cash that would equate to ~$1.5 - 2.5m DAW?
As I said, the above is in the ballpark based on my experience but is light for a MF and it varies a lot firm to firm.
In terms of the comments below, Can’t say it doesn’t happen, but I’d be surprised if an underperforming fund offered more $ at work, after all everybody expects their next fund to be their best fund
The other variable to consider is fund performance. Even if you have more $ at work in a MF, it's becoming increasingly hard to drive outsized returns in that segment of the market. Not saying this happens all the time, but there are certainly scenarios where a VP at a top performing MM fund can end up with carry that's worth more than a VP at a below average MF
What are some below average MFs
Bump - interested as well re above / below average performing funds
All very true.
For example look at Veritas which has historically been viewed as a MM (not even UMM) fund and absolutely crushes their returns… vs say Apax, which up until about 5-7 years ago was viewed as a top of the food chain MF… but has had very subpar performance.
What really helps IMO is stability of returns. If you can consistently crank 2x MOIC you actually know what the carry is worth. If it whips around a bunch, you stand the risk of getting small carry (at VP level) when a fund vintage crush’s it and big carry (at partner level) which fund vintage sucks wind. Your fate is tied to the fund performance. So how much would it suck to get the massive wealth creation carry allocation in the laggard fund.
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