How does MF Carry work?

At MM funds, carry is a stated/set amount. Billion dollar fund, economics are simple & are set in stone. But at publicly traded MFs, where they're doing $20bn+ funds, how does carry work? Do principals/partners get allocated a set % of the carry pool at the start of the fund, or is that not the case, meaning it's determined on a case by case basis as the fund exits portcos?

The other thing is in MM, a principal may get like 1-3% of the pool, that's obviously not the case for MFs. That's a function of smaller sized funds + a lot less IPs in MM funds. For carry at MFs, would you say principals are at 25-50bps, and partners 75-150bps? Let's not forget, MF performance (in terms of MOIC) has been eh -- like 1.5x on those $20bn funds. Not 2x. That's still a shit ton of money going around, and who cares.

Last point: for public MFs, half of the carry goes to shareholders...do principals/partners make this back through RSUs, more bps of carry, or nothing? Thx in advance. 

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Comments (12)

May 29, 2021 - 9:56am

Carry almost always granted at the beginning of the fund, it's rare to receive carry several years past final close. 
 

The bps range your are qouting is reasonable for MF.  Even for a mezz type fund, expect to wait 7-10 years in some instances years to truly earn your carry dollars, before that it's mostly tax distributions as the funds hurdle rate may already be met by coupon but some is PIK and some is Cash pay etc 

May 30, 2021 - 4:52am

Regarding your last point, MFs employees don't really get back the carry given to shareholders. Remember that before being a public firm, it was a partnership with a few founders with massive ownership %. Carry used to go to them, now some still does, and the rest goes to public shareholders.

May 30, 2021 - 12:04pm

Do you get to keep your carry if you leave the firm (for whatever reason)?

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  • Analyst 1 in PE - Other
May 31, 2021 - 7:14pm

Carry at our firm vests on a 3-5 year schedule depending on the fund life. If you leave you forfeit anything that is unvested.

May 30, 2021 - 6:15pm

Typically there is a vesting schedule that Someone leaving on good terms will be able to follow, something to the effect of 25% vested after one year, 50% after another few years and then max maybe 75% vested (Ie you leave 5 years after your receive allocation) just depends on the docs. If you leave under bad terms/terminated it could be very different or basically zero 

May 31, 2021 - 3:30pm

I think people misprice the risks for future primordial human nature to take effect when large sums of money are involved and long periods of time elapse. 
 

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  • Research Analyst in HF - Other
Aug 27, 2021 - 3:44am

So what if you leave BX to go to Apollo for example (I know in reality this never happens). Do you lose a bunch of unvested carry at BX (maybe vested too since its a direct competitor?) and then does that get made up for in Apollo funds carry? Or you have to wait until Apollo raises another fund?

If it's the latter, I feel like Principals and up can never leave the PE shop they are at

  • Analyst 2 in IB-M&A
Aug 26, 2021 - 3:37pm

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