Jul 22, 2021
 

To clarify, only all-senior funds (sprinkled with same safe 2L) have back leverage. Very few leverage providers will give an advance rate on anything junior to 2L and even the advance rate given on 2L is 20-40% max, in my experience. Have recently gone through the convos with a handful of them during a fundraise. 

Life is more than dollars
 

How much lower would carry he at the senior level? I’ve also heard that PC usually have a higher AUM/headcount ratio so even though return is lower carry comp shouldn’t be too low on average (obv top performing PE will do better given upside). Is there any truth to that?

 

From comparing my cash comp with a friend at MF PE it's actually fairly similar. I hear it diverges when they get carry, but I have much better hours. So there's some puts and takes, I think in PE you max out cash comp probably similar to credit if I had to guess.

 

Have heard the same on comp (excl. carry) being the same across major strategies at MFs. Credit is a key pillar of many MFs' strategy by now - just look at Blackstone Credit as an example.

The carry component and differential vs equity colleagues is not always trivial to assess. Generally speaking, carry in PE will be higher assuming same fund size / fee earning AUM, given PC has management fee of 1.0-1.5% with 10-15% profit share (depending on fund strategy) vs 2/20 for PE, and assuming PC will yield ~10% while PE will yield ~15% both over 5y investment period. 

Differential will decrease once factoring in that there is often fewer investment professionals per $ under management in credit, i.e. VP at MF Credit will possibly get more % of carry vs PE VP. 

Others please chime in.

 
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It's not trivial to assess the difference in total $s, but I think its important to understand how long it takes to get carry and how you actually realize it. You get it vested over a 5-7 year fund, often it vests on a straight line, so you need to stay there for at least 4-5 years for it to be worth anything and maybe the fund takes 7-10 to actually payout the realizations from start to finish. All the while, you are working 70-80+ hour work weeks (while the credit guys may be pulling in 50-60) and getting your weekends/life blown up. There's also many strategies within credit that may not have carry like the public side, or at APO credit they are *mostly* public side and do some private side deals, likely not getting carry that means much.

So yeah carry is not insignificant, but its tied heavily to your longevity there and takes a ton of time to be realized. I would bet that the amount of people that fully see the carry out is likely less than you think.

End of day my takeaway is - cash comp very similar, carry higher in PE but comes with harder lifestyle/hours and requires longevity to actually see it realized and receive it.

 

That’s all spot on.

Only difference I would flag is that PC is way more scalable. Putting $1-2bn to work per year in PE is quite a task vs PC guys parachute in when the deal is already pretty likely to get done and they get diligence materials served to them on a silver platter… so putting $1-2bn of PC to work is like a 4-6 month affair.

I’ll let one of you sketch out the math. But what’s the per year average carry spun off for $1.5bn PE at a 5 year 2.0x MOIC vs. $4bn PC at a 3-4 year 1.3x MOIC?

Im guessing it’s pretty close to parity. Now add to that much better lifestyle in PC but far less interesting and it’s largely a wash. Be that as it may, career-wise PE is still > PC by Wall Street standards. For all intents and purposes PC is servicing PE and are largely getting managed by our cap mkts guys, who no one really respects.

 

Following. Thanks for creating the thread. Interested in hearing specific numbers at shops.

 

FWIW, Carlyle Credit probably has lower comp than other MFs.

 

Yeah. PC shops can generate 15% IRRs (2x levered) with 1L security and low portfolio management costs. So long as you avoid binary risk in your deals (ie. taking a donut), you can generate a pretty nice returns and have a better lifestyle. I'm not really interested in working until 1AM anymore... 

 

Currently on the debt side at a debt fund and looking to transition to the equity side (which fits better with my personal style of investing). Generally speaking, are the hours going to be worse? I've heard that due to there being fewer equity deals, equity professionals on average work on fewer deals at any given time, which somewhat counterbalances the more "hands on" nature of equity.

 

PE is just much more labor and time intensive. Hit rate of deals looked at vs deals done is quite low. Involvement during the investment hold is a substantial part of the job. Networking with management companies is big. Developing and building out investment themes/ideas is hugely time consuming. Diligencing and structuring a deal is quite intensive. The risk profile through the equity means you have to be waaaay more paranoid and rigorous.

 

Not sure I’d lump in Guggenheim with the other two…..

 

I mean if you look on the search bar, you’ll see data points for most firms. Think mid 200s all in first year comp is pretty typical for larger private credit funds. At certain firms, comp can stretch first year to something like 300 - 350. Expect at those places to have about a 50k increase in comp yearly through time you hit director / principal level.

 

As data (and requests) are trickling in, has PE & credit followed the banks in comp increases? Unsure how long the lag is between banks increasing pay and the buyside increasing. 

Life is more than dollars
 

Damn that sounds like a great place to be! Isnt pimco = pricoa Capital?

 

Virtually impossible - almost exclusively recruit out of IB roles. LevFin is probably the most common team they pull out of. I’d try to transfer into those groups within your bank then make the jump 1-2 years later

 

Wouldn’t listen to the other guy at all. Corporate banking is fine as long as you know your stuff. Private credit investing is just building the credit memo for a bank on steroids. If you’re smart / personable and have some deal experience you’ll be fine. Know multiple people from corporate banking who have gone to top credit funds

 

The biggest questions really I’ve encountered are 1) can you model as well as an M&A banker, 2) can you think critically about your deals - some bank credit processes are too “paint by numbers”, 3) are you able to keep up when things get busy (in other words, you’re not coming in expecting to bounce at 5 or 6 every day and never work a weekend). If you can convince people of those then CB background is fine, it’s just harder to market off of it than IB.

 

Thanks. How are these programs typically structured? Do you commit to a fixed amount (and what is this capped at?) or is it done on a per deal basis? Participation in credit funds or also PE? Are you charged as an LP or no fees?

 

I think there is a little confusion on terminology in this thread

Can someone provide a little clarity on the types of roles we are discussing? The OP is talking about "credit funds" connected to large MF PE (Blackstone, KKR, etc). I am assuming they are thinking of some kind of opportunistic credit fund where the focus is on distressed credit and special situation lending (origination). I'd assume these roles are compensated well and might be in-line with or close to PE comp

I am guessing there are also some more direct lending type roles where you are originating more vanilla senior secured loans. I'd assume these would be paid lower than the opportunistic type roles

 

Don't think this has been answered but when thinking about going into different areas of private credit such as mezzanine vs. direct lending. Is the comp discussion as easy as mezz usually involves more risk so greater yields and will generally pay more? Seems like a lot more deals and I would imagine AUM in direct lending. Trying to figure out if one is worth focusing on over the other or if it's not all that different from a comp standpoint.

 

To add a data point - just received an offer from the credit arm of a MF. I’m a lateral from a bank but would think I’m going in as an AN1.  Base 120K and told me I should expect total comp to be around 160 given the fact that I’m joining in May (bonus to be pro-rated for 7/12 months till bonus season). 

 

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