Hey monkeys I'm in late stage conversations with a entrepreneurial shop that has suggested that they will offer carry in each of the deals that we close. From researching and talking with friends it seems like carry in the deal can range pretty significantly, it can be at the deal or the fund level, and may or may not include other associated fees such as the acquisition fee asset management fee or construction management fee. While I am eager to receive performance compensation/carry, I will honestly say I haven't had these types of conversations before and I'm not exactly sure how I should go about thinking about it and what my target range should be. Does anyone have any insight that they can offer on the first time that they went through negotiating a similarly structured compensation package?
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I have experience this both at a fund level and at a deal level. For the fund level, it's typically a % (say 0.25%-2% of the carried interest for this fund). There is typically an vesting period, and you can do the back of the napkin math (fund size, target returns, returns to investors, 20% carried interest after that) to guage how much money this equates to. Keep in mind it could take 5-10 years to see any of this.
On the deal by deal side, it really depends on how the deals are structured. I was offered 2% of deal promotes. "Promote" was an undefined term in my contract, I assumed it was the promote given to the GP entity from the LP. Turns out, our GP entity is comprised of a co-gp on almost every deal, who takes half of the promote. So my 2% was really 1% of the promote I was envisioning. Just get an understanding of the how promote is calculated, and how it vests.
Thank you. Very helpful. If I’m understanding correctly, I also need to think about what the waterfall hurdles look like in order to get a sense for when I would be “in the money?”
Yes, I have always asked for 1 or 2 underwriting models of typical deals, then I look at the returns, structure, promote. Obviously vet the assumptions in the model to make sure they are realistic.
Also, what about fees? Do you see any of the acquisition fee, CM fees, dispo fee, etc?
No, typically these fees go to the actual company/corporation that employs you, and used for administrative, payroll (including your salary), office space, etc.
Depends on your deal. You can have equity in the fund/deal (net equity returns after feees only) OR equity in the company/parent entity, which would also grant you participation in all the fees that come in from the same deal.
What level is the role? Associate? VP?
The role is a VP role.
If you don't mind me asking, what does your base/bonus offer look like?
Multiply your expected carry payout by 60% for the cash value. You need to make sure to discount it. Also, just remember you can’t eat carry and don’t take too much of a hit to your cash comp to get at carry. It won’t pay out for 3-7 years (maybe more) and you may not be at this job at that point.
Is it typical for someone to be able to leave a job and still get paid out if the aren’t there in 5-7 years?
Very rare.
I can participate, deal by deal. My shop only shares the promote with those who are actively working on the deal. Once you leave, they pay out your initial contribution at par. It's basically golden handcuffs, so I am only banking on our short-term deals. I see deals greater than four years as an "out of sight, out of mind" kind of investment. Plus taking into consideration market, interest rate, and exit risks.....who's to say the sky won't fall by then?
It depends on if you are vested and if the company can buy your shares back at par or below par. That’s the kicker where some firms get out of not paying you.
If you leave on a positive note then there is a strong chance you will still participate. This has happened to me.
Depends on how the vesting schedule works. Some shops its 100/0 others are based on time at the fund then discounted.
Appreciate this thread a bunch. I was just given an offer for an Acquisitions Sr Associate role in a major market for development deals. What are people’s thoughts on “fees/bonuses” paid at the close of each deal? I was offered a two part structure for personal deals (higher) / company deals (lower) without carry points. I personally think it was structured well and motivates me to bring deals and close them quickly, but wanted to see people’s thoughts on if I should be mentioning carry at all at this stage. Thanks y’all in advance
What kind of projects are you working on? Are you planning on staying there forever? Carry is only good if it gets paid out. Since most places have like a 3 year vesting schedule + you have to wait until the deal is realized, while getting some of the action is nice, cash comp can be better during the early part of your career.
I got carry in my fund last year. It is a 5 year vest (debt fund). When I started this job, I was planning on it being at least a 5 year run to see the full realization of a fund, but if I get some amazing offer somewhere, I'm also not going to let 250k in carry stop me from leaving.
The firm specializes primarily in multifamily with some current life science projects and an appetite for more. Since they are 80% development deals, I think they way they structured it is good for now. If we close a handful of deals I’ll still be making a killing today at the expense of waiting half a decade for the project to be built and refid since they typically like to hold, which could be big time money for each but there’s a risk like you said it doesn’t perform as well and it’s not a huge number. I think it’s also set up to pay now and if I do well I can ask for carry on deals I bring in and would really make a career out of it. Thanks for your input…
My compensation is structured similarly, though I get promote and % of the acq. fee on deals that I bring. I get a base, bonus, and deal bonuses for every deal that we close. If I source the deal, I get a % of the acq fee and % of the promote.
What's difficult from the company's standpoint is structuring it in a way that doesn't encourage you to spend all of your time finding your own deals at the expense of others. It's worth mentioning carry on personal deals, however it might be worth asking about time allocation (e.g. how much of my time should be spend sourcing/other stuff, 20%/80%?). In my case, it was made clear up front that I should be spending most of my time on the deals that others are bring in, and gradually I'd be more involved in sourcing. And that's what happened.
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