Lateral 1Y associate to first time fund - comp expectations?

Currently at a big fund, lateraling to a first time fund of around ~$750mm, I think there's like one real MD there and then a senior partner who's there mostly to put LPs at ease during fundraising. I have one full year private equity experience and three years of prior experience.


What comp should I expect, and can I negotiate for some carry? If so, how much? Can I get in writing my promotion path? I am taking this role for the potential upside because of a very unique strategy. Otherwise, I would be happy staying put.


Non-US, if helpful. Europe.

 

Depends on how many other non-partner employees there are, but I would say a slight discount to market for cash + carry.

Frankly, I think the value that comes from getting to a fund as it's launching doesn't really become apparent until you are on that partner track (vs. near-term comp). I would color my comp negotiations with that in mind.

Maximum effort.
 

He's talking about carry. The carry allocations in a PE firm is going to be largest for the early senior members. Pretend you can see into the future. Because of Fund A's pedigree it's foreseeable they'll raise subsequent and larger funds. Say Fund I is $500mm, Fund II is $750mm, Fund III is $1B, and so on. People who were senior earlier will be able to get carry allocations in all the subsequent funds, and since there are less seniors early on those allocations can be insanely lucrative even if you're not one of the foundering partners taking a lion's share. Then when they start getting harvested 7-10 years down the line they'll have years of cascading carried interest coming in at once. For this reason it's good to get in early and get as much carry as soon as possible.

Even in that situation though, it'd be pretty rare to see a fresh associate getting anything in the way of carry. It's just such a valuable incentive tool which can be used to hire top talent in more meaningful roles, so it's often times seen as a waste to give to associates since they are back at the bottom of the totem pole when they come into PE (usually). I just joined a $1B fund as an A1 and I took a haircut on base because they said I could fee-free co-invest (so while I have no carry, I can co-invest for free on any deals I work on with my significant savings). Near-term comp (practically all compensation until you're VP/Principal level and start getting awarded carry) is pennies on the dollar when you compare it to the compounding nature of carried interest in a successful fund.

 

Thank you for the explanation. I am not an insider but frankly I would expect the first associates in the fund to be able to negotiate for a bit of carry. If you have a good CV, why would you take the risk of following a senior willing to make it on his own if you could be at a recognised brand name learning the basics of the job? OP mentions a specific differentiating strategy, but what if what they are looking to do is vanilla-type LBOs? I would expect to receive carry to compensate for the risk. I would love to hear if anyone has views on how much you could potentially ask in bps.

Sorry OP for hijacking the post but I am in a similar situation

 

You're overthinking it. I was speaking in general terms, it's not a hard rule that associates never get carry. Hell, I know guys at Insight who are analysts with phantom carry as part of their 1st year package which I am insanely jealous of. Of course pedigree of the incoming associate vs that of the partners, the general strategy differentiation, quality of LP base, pre-built sourcing mechanisms vs having to build up from scratch, it all plays a part. But as a general rule, no, as an associate you will not get carry and frankly it doesn't make sense for them to award it to unless you provide some substantial value add. Since most associates are interchangeable as the entry level cogs in the industry, there's just no reason to.

 
Most Helpful

Agreed with everything you've said above, beat me to it.

Axiol , now is a good time to think a little outside the box. As one of the first employees of a new fund, you have a chance to set a different precedent. Remain reasonable, of course, but try not to let preconceived notions about what is market, and therefore acceptable, limit your discussions.

I couldn't have said it better myself:

Pretend you can see into the future.

and

Near-term comp (practically all compensation until you're VP/Principal level and start getting awarded carry) is pennies on the dollar when you compare it to the compounding nature of carried interest in a successful fund.

Precisely this. If you are serious about adding value to this fund and its investors, truly helping build it, then you need to approach all situations with that in mind--namely, comp.

Maximum effort.
 

I think you may be laughed out of the room for asking for 200 bps as a second year associate at a $750M fund... what are you doing as an associate to merit $3M on top of base + bonus? I’ll admit to not being familiar with EU standards, but on this side of the pond $750M is large enough to pay reasonable comp, maybe $225-$245k all-in plus 25 bps if you’re lucky.
 

Don’t get me wrong, you won’t get what you don’t ask for, but I’d set my ask at 75-100 bps and be happy with anything as long as the cash comp is in the ballpark

 

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