How to Retain Unvested Carry when Leaving Firm

PE VP here. For those with carry, have you or others you know been successful in getting their unvested carry to vest upon leaving for another firm? The most common way I've seen this done is for the new firm to give you carry in their existing fund for deals that were done before you joined. This is a give on their part as I think most places only give you carry in deals that close after you join. For the new firm to pay you cash for unvested carry at your old firm I believe is highly unlikely and rare.

Getting carry in the existing fund at a new firm for deals that happen before you join can be nice in that you can see how the deals are performing / where they are marked, so to the extent they are doing very well you have a clear sense of value (assuming their values don't drop). This could be an even better carry scenario than staying at your old firm if the deals in the existing fund at your new firm do better than the ones at your old firm. It also means you can get carry payments quicker given some of the deals that were made before you joined the new firm could be several years old and facing a monetization in 12-24 months.

Other firms I've heard will give you extra carry in the existing/next fund (but only for deals that happen after you join) to compensate for giving up your unvested carry at your old firm.  

For those at the VP+ level with significant unvested carry, what has been your experience in getting either your current firm or new firm to compensate you?

I've heard one tactic to get your current firm to vest you is if you are moving to a different sized fund (let's say MF to MM) and your geography is changing (i.e., NYC to LA) such that you can make the argument that you're moving for geographic reasons and your new fund is not a competitor of your existing fund due to different fund sizes. Has this approach actually worked for anyone?

If your existing firm is not willing to agree to this, then it's up to striking a deal with your new firm. I have heard joining MFs is a good option as they are much more willing to compensate you for unvested carry than smaller firms.

Let's say in the candidate pool for a new role you have among the higher unvested carry dollar amounts. How do you strike a balance between asking for the new firm to compensate you for your unvested carry vs. coming across as asking for too much, especially relative to other candidates who might not be asking for any of their unvested carry to be paid for by the new firm (and therefore resulting in the new firm passing on you)? Is there a certain attitude of just accepting neither your existing firm nor your new firm may compensate you at all for unvested carry and taking the view that it's not worth giving up a great role at your new firm given (i) while carry dollars at work are often quoted assuming a 2.0x MOIC, the reality is most deals earn less than 2.0x and (ii) at the VP/Principal level, while unvested carry can be meaningful ($1mm+), it's helpful to have a long-term view and think of the carry (which will be even greater) that you can make as a Principal/Partner? The latter reminds me of the analysts that debate whether to join one BB over another because one's starting salary is $10k higher. 

While I imagine the answer to the above is every situation is different, it would be helpful to discuss as a group so that if we ever find ourselves in this situation, we have the negotiating leverage and strategy in place to ensure we can get the best deal for ourselves.  


 
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Not in PE, but in HF, so somewhat similar (non vested fund equity) but not exactly. 

I have honestly seen 3 things happen with senior people:

1) current firm vests your equity but keeps it in fund so you are still tied to the returns

2) current firm pays out as cash (you have to negotiate the math here)

3) new firm pays with non vested equity or cash 

As to how to negotiate this I have found the best way to mostly not bring it up much during the interviews (have them like you based on merit), but obviously make it clear if they ask (after all they should expect if with senior candidates, if not you probably aren’t very good).
 

After you are far along in the process and it is clear that they are seriously considering you, I would (if you feel comfortable and think it will get them to bid up) share the compensation structure you have. Make sure they understand that you would be leaving a lot of money on the table, and let them come back to you with options. Firms that are well funded and want to hire you will make it work. When they are recruiting senior candidates, the options aren’t huge (and almost all will be very expensive). So if you are at that level and good enough to be getting high carry, they know they’ll need to do something. 

I’ve seen places do pretty reasonable things to make candidates whole. If they can’t, they won’t be getting their top pick. 

 

I assume unvested carry would mostly be lost, right?  For example, if you stay for 1 year out of 5, you only really earned the 1/5th worth of vesting.

For VESTED carry, isn't the simplest option just keeping it in the old fund until exit?  Any payout in cash is going to be super-dependent on the BS marked values.

I have a similar issue as a young PE -> PortCo exec

 

You want to negotiate for unvested carry as much as possible. Remember, part of the reason firms vest over a period is to retain you. If you leave, your current firm may not be agreeable to vest it or pay out (although I’ve seen it done for non competes, etc). But your future firm should understand that by staying at your current firm you would be accruing this, and that is a big incentive to stay. 

At least in the HF world, future employers bridging that gap at senior levels is relatively standard. 

 

For a new firm to compensate you for unvested carry, what in your experience is the most typical payout on a % basis (i.e., is it common to get compensated for 100% of your unvested carry, or is somewhere in the middle like 50% more common)?

How does one convince the existing firm to let you keep your unvested carry? What would incentive the existing firm to do so?

 

I've not heard of precedents where the existing firm will somehow pay out the remainder of your unvested carry, since that's the whole point of vesting and can be thought of as an annualized dollar at work. Getting the new fund to give you carry on the whole fund isn't all that rare assuming it's not >50% deployed, and that would be your best bet. 

 

The only time I've seen an employer that someone was leaving agree to vest a portion of the departing employee's unvested carry was with a one-year term that came with a rigid non-compete. That person was a very strong performer, leaving as a Principal, and moving to an SVP-level role in a family member's skyrocketing unicorn startup based on the other side of the country. What I'm trying to illustrate is that it was someone leaving the industry, changing geographies, and going to a new role where the firm probably felt like it was better reputationally to keep that person happy.

What I've seen much more commonly is a prospective employer trying to entice a desired candidate by matching some of the unvested carry dollars that candidate is forgoing by leaving their current firm. As the anonymous poster said, good talent is scarce. Good talent that's compatible with how the senior people at the firm like to do things (idiosyncrasies matter so much the further up the pyramid you go) even more so. I can't think of anyone who got less than half of the carry they were forgoing. One got a full match. This is four data points:

  • polylingual European native with an HBS MBA at the Director level getting enticed from an upper middle market New York fund to a London-based fund trying to add coverage in his native country
  • high-performing black guy at the Vice President level moving from one megafund to another because their diversity numbers were miserable and a pension LP told them to fix it before the next fundraise
  • analyst at a great hedge fund (strong multi-billion single manager) that was on a three-year schedule moving to a fairly newly launched sub-billion fund as a small-stake partner
  • a story too specific to post without being identifiable
I am permanently behind on PMs, it's not personal.
 

I think you gave a good summary in your initial post.
 

I would add that there is often a discretionary aspect on the part of your outgoing firm and it’s important to understand what the leaver provisions are. I have seen separate provisions for good leavers (typically death or incapacitation), bad leavers (dismissed for cause), and intermediate leavers (most often the case and often including some discretionary aspect). There may also be specific wording when moving to a competitor. 

If you move to a different geography or strategy, you may be able to keep it all, but it may depend on the overlap with what your current firm does, as well as the relationship you have internally. 
 

I would expect to retain at least 50% of what is vested, and then I’d try to negotiate something with the new firm. Depending on the carry structure (American vs European), not uncommon to get carry in existing funds that are still investing, I.e getting exposure to total fund, not just deals which you complete.

 

It depends on where you’re going afterwards and the specifics of your subscription docs. 
 

If you stay in PE, I would expect to lose about half (or more) if going to a “competitor” and potentially keep more otherwise. 

 

Very helpful comments, thanks everyone. Couple additional questions:

If your new firm is willing to give you carry in the existing fund as a whole (including investments that were made before you join), is the vesting period on the "transfer" of your prior firm's unvested carry subject to the same vesting schedule (let's say 4 years) as your new carry or is there any chance it would vest immediately upon joining the firm? Said differently, if you have $500k of unvested carry that the new firm gives you in unrealized deals that occurred before you joined, that $500k likely wouldn't vest right away upon you joining the new firm, correct? It would be four years in this example (i.e., same vesting schedule as the deals that get done after you join your new firm)? The benefit being even in this case that you could start to see carry dollars very quickly for example deals that got done 3-4 years before you joined and are 12-18 months from being realized? Note my example assumes American carry (i.e., deal-by-deal) not European (i.e. fund-level).

On a related note, what typically occurs when you haven't received your bonus (perhaps because you're on a December bonus payout schedule and you find a new job in July)? Is there any way to get your current firm to pay your pro-rated bonus (i.e., 50% in this example)? Or do you need to rely on your new firm compensating you? If the latter, how likely does this occur and is it common to get 100% of your pro-rated bonus paid for or is it more common to get a lower amount like 50%? I imagine the answer will depend on whether you are going from a larger firm to a smaller firm, same size firms, or smaller firm to larger firm.

 

Not perfectly relevant, but just to add a datapoint when moving from banking to PE off-cycle, I pushed for the PE firm to cover my pro-rata bonus (banking was summer cycle and PE firm was calendar year). They agreed and paid for 100% of the pro rata amount. Like another poster said, I can’t see a reason why the firm you are leaving would pay you a bonus

 

I agree with what others have said.

Forget about getting any bonus out of your current employer. Try to negotiate something with your new employer.

Vesting schedule based on when you join the carry scheme. 

 

Probably the most important question I forgot to ask is how is your unvested equity calculated in the eyes of your new firm if they are compensating you for some/all of it? Given carry dollars at work is usually quoted as 2.0x MOIC (even for deals that just got done), would a new firm value your unvested carry on this basis? Or would they be more conservative and base the calculation off of the latest quarterly marks? If the latter, then would you essentially be getting zero carry for deals that were fairly recent and still marked at cost?

 

They will have no clue about how much it’s worth. You should quote a number supported with some reasoning.

Be realistic though, if they are deals that have just been made and there has been limited value creation to date, you shouldn’t expect them to compensate you as if that was the case.

 

Iste eveniet nihil nobis est quisquam. Et omnis suscipit sed nesciunt et.

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