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Comments (30)

Jul 8, 2018 - 8:00am
Fairmove:

Thanks. I'm currently at 1.5% at a London PERE Fund, as an analyst. Aspring numbers you have there.

Do you have any skin in the game and if so, is it a like for like contribution? See a lot of recruiters these days with carry in the advert (in London too) but always thought it'd be strange for an analyst to have pockets deep enough to contribute. (dependant on size of fund too of course)

Jul 16, 2018 - 12:08pm

This is fairly standard if anyone is wondering.

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Jul 10, 2018 - 10:44pm

If you're speaking to me, that's not being a dick. I own a CRE Mortgage Brokerage, lone wolf. I merged my firm into my client's (now Partner) development firm and wrote the plans/found the seed capital for the fund. My job is to raise capital and manage our LP's. I'm nothing special, no college or MBA, just lots of failures in companies I tried to start and people seem to like how I look them dead in the eye while asking questions to make them feel vulnerable...

Jul 12, 2018 - 2:54pm

Typically carry is calculated at the Fund level. There are very few managers who are able to sneak in carry at the deal-level. (The ones who do it at the deal-level tend to throw in some pretty clever language).

Typical promote structure will have a preferred return followed by either one hurdle or multiple hurdles. I've typically seen the Firm/Partners receive 60-80% of carry with the remaining 20-40% reserved for team members.

Robert Clayton Dean: What is happening?
Brill: I blew up the building.
Robert Clayton Dean: Why?
Brill: Because you made a phone call.

  • 2
Oct 25, 2018 - 3:46pm

This is a really good, simplified example, nice job.

"Who am I? I'm the guy that does his job. You must be the other guy."
Oct 25, 2018 - 4:02pm

Have to keep in mind that sometimes the GP fees are swept before you get to the promote cash flow. So they wouldn't be included in this analysis. A good portion of those fees also go towards paying for employee salaries, overhead, etc. Not a massive number, but it definitely comes into play.

"Who am I? I'm the guy that does his job. You must be the other guy."
Oct 25, 2018 - 4:25pm

Correct - what I mean is that there usually isn't a ton left over to divvy up, a lot of it is spoken for. When you're at a large fund, the property management fees obviously go to the property management team (whether in-house or external). The AM and acq. fees at the fund level obviously are only paid by a 3rd party if it's a separate account business, meaning that if these 'fees' hit the portfolio of an internally managed fund where the REPE shop is the GP, it's cannibalistic to the remaining cash flow available for distribution. Because of this, the funds typically minimize these fees charged because that allows you to hit the promote quicker (and thus get a bigger % of whats remaining than you would in the flat fee structure in most cases). Obviously, staff need to get paid somehow, so most of the fees charged by the GP end up going to taking care of the employee/GP overhead - so usually it's not like there's a ton of 'vig' left to distribute if it's a true close-ended/REPE fund. The fees usually get much more juicy on the separate account side of the house, which is obviously an entirely different structure altogether

"Who am I? I'm the guy that does his job. You must be the other guy."
  • 2
Oct 25, 2018 - 4:26pm
The Duke of Wall Street:

What do you mean by "swept before you get to the promote cash flow?" My understanding is that those fees are earned by the GP outside of the JV Waterfall. So the decision by the GP to provide them as part of the carry is at the discretion of whoever allocates the carry at the fund.

The fees are not included in this. the fees are included in the $50MM budget. We wear many hats. The development entity pays the construction management, asset management, and development fees to us as the "developer", a cost of development. The returns are post collection of the fees.

Oct 25, 2018 - 4:29pm

OK - I think this is why there's some confusion here. What you're describing is really being the GP as a developer. It's an entirely different model than what I'd call a true 'REPE' strategy that is the GP with respect to the funds it manages but an LP when it comes to a transaction/JV in a development.

"Who am I? I'm the guy that does his job. You must be the other guy."
Oct 25, 2018 - 4:31pm
MonkeyWrench:

OK - I think this is why there's some confusion here. What you're describing is really being the GP as a developer. It's an entirely different model than what I'd call a true 'REPE' strategy that is the GP with respect to the funds it manages but an LP when it comes to a transaction/JV in a development.

Yes, that is true, we do not have a fund, many of our LP's have funds. Finance gets into a crazy Russian doll situation sometimes.

Oct 25, 2018 - 4:46pm

Oh, trust me, I know ;)

"Who am I? I'm the guy that does his job. You must be the other guy."
Oct 25, 2018 - 4:20pm
The Duke of Wall Street:

Makes sense. Your carry is solely based off of your pro-rata percentage of the promote? There's no ability to participate in any of the GP level fees? (e.g. acq fee, am fee (fund or asset-level), dev fee, pm fee, etc).

Depending on if we entitle the land ourselves or purchase post entitlement, portions of the development fee are offered to the land partner (person who put up the entitlement risk and got the deal to where it needed to be), they sometimes negotiate a piece of the promote as well. I do not get any portion of fees. I get 2% carry and co-invest, 25% of our carry goes to the GP. I can co-invest into the GP.

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