Small fund promotion vs upmarket lateral
Looking for thoughts on what you would do in this situation...
I’m a second year associate at a LMM ($200M fund size) PE fund in a secondary city. We have deals under LOI set to close in the next 2 months that will let us nearly max out the current fund, at which point our partners want to start raising the next one. Target fundraise isn’t much bigger ($250M). I joined from a no-name boutique bank, so career optionality feels somewhat limited due to lack of branding.
Our partners have promised me a promotion to senior associate and a carry allocation (TBD but expected to be 50-100 bps) when we raise the next fund... breaking into the carry pool is a huge hurdle and an exciting prospect, but obviously at this point this is still contingent on actually 1) deploying this fund, 2) raising a new one, and 3) receiving the discussed economics.
At the same time, I have another offer in hand for an associate role at a larger fund ($800M last fund). Cash comp is higher but nets out roughly the same because this requires a move to a higher COL city, though I’m focused on long-term rather than immediate economics. This new role would be partner-track with no MBA required, but would probably leave me at associate for 2+ more years.
From a career development perspective, would you take a promised but contingent promotion at a smaller fund or an opportunity to reset at a more established group?
Since I expect it will be asked, cash comp is currently $175k (split 100+75) in an Atlanta/Charlotte/Houston type market. New offer is $250k (125+125) in NYC/SF/LA... online calculator shows post-tax takehome is $30k higher in the new market, which I expect will disappear quickly due to higher rent, food, etc. Unfortunately the base alone will feel light, but again I’m looking longterm here
COL only matters to an extent - saving a dollar in Atlanta is no different than a dollar in NYC. Also if NY /SF it's doable to drop the car which should shave a bunch off.
All very good points... at the end of the day I’m more interested in the money over the next 20 years than over the next 5
Two things stood out to me in your background on this situation: (1) your reference to your limited career optionality due to lack of branding, and (2) your note that you're looking long-term.
My read on your options is that if you wanted to maximize earnings (and probably savings) for the next 5-ish years, stay. If you think that your team's deals are going to be successful (necessary contingency for the carry to be worth anything, and easier said than done), and you can raise the next fund, and you can deploy the next fund, then continuing to make your cash comp and staying in a lower COL market is going to do great things for your personal balance sheet.
But if you are looking farther out and trying to make sure you preserve optionality for beyond that 5-year horizon, then I'd jump. It sounds like the new opportunity has what you can't get from your current role, which is some brand equity and a different career trajectory. Even if the new role is a lateral comp-wise, it sets you up for greater earning potential down the road and a greater option set if you decide to make another move.
You'll have to weigh the likelihood of success in either case, but just given the constraints you've applied, it sounds like the new role is a better fit for your goals.
Thanks, this is a helpful framework to think about it
What Would Jon Gray Do?
How are the current investments at your first fund doing? Also, longevity matters in this game.
Current fund is about 1/3 the age of the new one, so they definitely have more proven longevity.
Investments are doing moderately well, with some disparity. I think 2.0x fund MOIC is likely, with potential for 2.5x if a few things go our way
Stay then and get your carry. Put in a solid 6+ years so you can see a full deal cycle, entry --> PM --> exit. Plus it seems that you have good rapport within your team, get yourself into a brand name executive mba program and that should help you be more confident from a branding standpoint.
Two things worth considering are culture/fit of both firms and body count standing between you and a VP title (thin layer of VPs that are on track to make Principal with limited # of associates to backfill being good, lots of newly minted VPs / Principals being bad).
Interesting to see the variety of replies here... seems like this is one where you can’t really make a “wrong” decision but you need to figure out which one better fits your long-term goals
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