Help w/ typical carry + coinvest profit example for VP?

mrkwso

Hi everyone,

Long time lurker here and beneficiary of the WSO forums. I'm a college senior/incoming banking analyst and would like to estimate a typical "VP" carry and coinvest package for a typical middle market PE firm for one of my classes. All illustrative, and I'm familiar with the general concepts and have talked to a few PE professionals about structuring, but it would be really helpful if you could all opine on the example I have included below and let me know if it looks correct, and/or what assumptions I should change. Sorry if any of this has been covered in other threads, but I couldn't find answers to this specific example/my questions.

The things I am most unclear on are:

1. I have heard fund coinvestments described as "fee free carry" - what does that mean? If there are no fees on the VP's committed coinvestment, do they just pay capital gains taxes on profits from their coinvest? (assumes carry and coinvestment profits are paid on a fund basis, not a deal basis) It means employees don’t pay management fees or carry on their co-investment. Taxes will be the biggest expense in this case
2. I really don't know what fees the investment professional would pay on their gross carry distributions...5%? Let me know what is the typical range here Not sure what you mean by fees on gross carry distributions. You’ll just get your carry check and have to pay taxes eventually
3. I have the carry taxed at 30% in case the capital gains treatment for carried interest changes Don’t forget state/city taxes and NIIT
4. Is the gross coinvestment return being calculated correctly? 2.2x (the estimated gross fund return) multiplied by coinvestment principal invested That seems like a reasonable assumption 
5. Let's say the investment professional leaves after 3 years when their carry is 40% vested (conservative estimate) and their personal coinvestment is 75% invested, as in the example below. 1) do they have the opportunity usually to invest the other 25% of their coinvest after they leave? If not, can they keep the profit from the 75% they invested? And of course, they keep the % of their carry that is vested? They’d retain any vested carry portion and receive profits from the 75% co-invested. Whether they can invest the remaining 25% depends on the firm in question 
6. Depending on the assumptions, this could really be a lot of money...like if they have a bigger coinvest and the fund does very well (3x gross), over $1 million in post-tax profit to the VP, even if they leave in 3 years and get a fraction of their carry...is that right? Absolutely - it could take 5-10 years to see the money, however
7. Overall does the example below look structurally correct? Leverage on the co-investment is only 33% in your example. You should be able to get a loan for 50-75% of your total investment

Thank you very much for the help here!