I am curious about some of the PE professionals (associate/vp/etc) on this board and the returns they have been able to achieve by investing in their firm's fund. You see plenty of discussions on this forum about PE associates being able to invest alongside their firm, but not a lot of talk about the results of those investments. As an outsider looking in, having a chance to invest in your firm's fund seems like a pretty great opportunity, given you are confident in the team/strategy/etc.
How much did you invest? Did you have to take that money out of your future bonus/etc to fund the investment? How long until you were able to receive your investment (+/- any profits) back?
What returns did you achieve over x time period? What was the experience like? Were you able to beat the general market? Would you do it again?
the typically return trust funds for your children
Bump. Also interested. I have co-invest ability and was going to do it right before COVID hit but haven't thought too much about it since. I'll likely do it at some point but everyone is on edge given hits to the portfolio.
I watched the guy next to me pay for business school in full with his co-investment in our fund when our firm had a run of 3x / 4x exits a few years ago. I would highly recommend investing as much as you can comfortably. Not paying fees creates a huge amount of value for you, even on mediocre deals, and the returns are likely way above anything you'll get in the public markets.
Plus it makes work a lot more interesting when you have money invested in what you're working on
300% return is nothing to blink at and people shouldn't expect similar results... But 4x is modest compared to a few of the better plays over the years.
Top two that I've heard personally (and believe):
1. An ex-Cortec guy co-invested in Yeti, netting low seven figures post-IPO from a mid-five figure initial investment. WSJ reported that the investment in Yeti returned ~50x in four years, representing a 170% IRR.
2. An ex-MF VP said joining the firm was the best thing that ever happened to him because he is "finally independent" from carry on one of their early funds (~15 years ago). He ended up staying and the carry from the second fund paid for his private jet and vacation homes... His instagram confirms "financially independent."
Insta handle?
A lot of places offer leverage on coinvest too. Factor that into a handful of 3x exits and you're looking at some real $$.
HGGC offers leveraged coinvest at extremely low cost, I have always thought this makes up for their meh comp of $250k (iirc) cash
what does iirc stand for ?
How much leverage and how low of a cost? Have the opportunity to do this at my firm and want to understand what's market.
Can anyone explain the co-invest leverage concept further? Who is actually financing this component?
The fund
There are some banks that will create a line for the GP and the employees of the fund that will allow them to fund up to half of their equity co-investment in cash and the other half in debt. Great way to boost your contribution, since if you're targeting 20%+ IRRs and you're paying a MSD interest rate the spread is pretty good. Also funds delay capital call timings, so that helps with IRR's.
following
How exactly does coinvest work? Would you earn the same return as the GPs before carry? So after taking out the return of capital and mgmt fees to LPs and preferred return (assuming 8% annual hurdle), does that mean as a coinvestor you get the GP priority catchup?
Lets say theres still 200M left after paying out 100M in preferred returns, do I get a portion of the 25M catchup as a coinvestor? And then I won't get any of the 35M of carry (remaining 175M * .2) correct? Assuming I throw in 100K, how can I calculate my return? What if I lever up 3x?
as a coinvestor you're just an LP but on a carry-free and mgmt fee basis. you don't participate in any GP economics, but you participate in LP economics on favorable terms. put in 100k, lever 3x = 400k basis, assume 2x gross moic, so 800k returned, less 300k leverage (ignoring interest), less 100k initial equity, = 400k profit
Got it this makes a lot more sense now! I assume this is a simplification of the process right? Given that theres a GP catch-up before you can split the remained of the pot 20-80 GP to LP after earning your preferred return as an LP and having original capital returned?
I'm guessing you have access to non-recourse loans as an employee with a co-invest opportunity (ofc varies from firm to firm but essentially, you won't personally be on the hook for the leverage if the fund doesn't return above 1x).
Think of it this way. If a fund raises $100M, the GP (The partners / employees of the fund) will put in 2% (could be more, but that's the minimum) of the $100M. So in this case there's a $2M GP co-investment. It will achieve the same returns as the fund and is equal to the other LPs, but generates no fees. So efficiently, you'll have better returns that your LPs.
Wow. The leverage here is the trick. No wonder guys in PE get so fucking rich
The hard part is getting into a fund producing consistent returns. :)
lol absolutely this
Does anyone know how co-invest works at the following firms: SL/Vista/Thoma?
SL is 4x leverage on co-invest if I remember correctly. Everybody gets co-invest opportunities, but I'm not sure about the limits.
SL is which fund? 3x?!
My fund let you borrow against your bonus and introduce leverage. I threw in about $30K before I left. Most of the deals I got in on are looking at exits in the next 1-2 years, so my returns are probably going to be trash.
Does anyone else find it hilarious that this post is empty after two days and after being placed on the front page?
We have just one story of actual good returns....boy, can't wait to put my money in PE.
?
Lol, I hope the 2 MS throws are from the 2 people who actually provided numbers.
$200K of mine + $400K leverage in summer 2017
Currently marked above 1.5x, low double digits returned.
Yeah pre-leverage. Won't give away the actual fund vintage as it's obvious then.
all i know is it makes you a fuck ton of money
i'm aware of a back office person at kkr who was able to coinvest for a long time and is worth mid to high 8 figures due to those coinvestments. their salary isn't even that high and they are now rich as fuck
i know right? i think they topped out as a career manager but joined early enough to get in while the getting was good
idk if they still allow back office to coinvest, this person has been there for like 30 years or some shit
I'm guessing these co-investments (whether at a fund-level or deal-to-deal basis) are taxed at long-term capital gains rate?
Also, are you all making these co-investments from your pre-tax or post-tax income? On what terms are your firms offering you leverage?
Fund I work at offers 75% leverage for the employees coinvest Fund with cheap accruing interests. If you are lucky enough to invest during a good cycle you can >4x your money
How cheap on the interest rate?
it's in the mid single digits.
I invest carry/fee-free at my fund, and they allow me to lever up 100% (i.e., for every dollar I invest, I get to borrow another dollar to invest) at ~4% interest. Returns are very good - 20% IRR on an unlevered basis.
For those of you who have co-invest leverage, is that leverage recourse to you in the case of a loss?
Be wary of co-invests - speaking from personal experience, it is definitely possible to lose a lot of money with 0 liquidity / options if the fund undeperforms. Early on in your career it's probably fine because you'll make it up, but do not ever, ever assume that PE returns are "base case" some teen IRR because I assure you - you can definitely lose money.
Curious about experienced (read: those who have seen the fund return capital) professional's leverage on this too. I've coinvested in my fund and my leverage is recourse. Should generally be easy to not be completely underwater on the debt given funds are incentivized to invest above their hurdles, which is above the cost of the leverage, but a complete mark loss cuts pretty deep. How often has this happened and how have people recovered? I would note that typically funds have a 4/5 year invest and 4/5 year harvest so realistically you're realizing these losses 8-10 years after making the commitment, which could be devastating.
I think it's more probable than people think. You typically co-invest in your fund as an associate in the deals that were done during your time there (vs. being a GP in the actual fund) - this is because you're there only 2-3 years. So let's say your firm does ~4-5 deals in 2 years - all it takes is 1-2 businesses that hit some speed-bump for you to start impairing principal on your investment (and basically make making a return impossible).
There is a long, long list of PE-backed bankruptcies out there... all equity gets wiped out in each of those deals obviously.
From a risk reward perspective, would leveraging up on your co-invest in REPE be safer since building worth typically never is completely lost?
PE IRR owns if u take out fees, so ya LEVER UP
Is there a way to do this in a pre-tax or tax advantaged account like a 401k or IRA (regular or Roth)?
I believe there is, I remember reading once that this is how Mitt Romney made his money during his stint at Bain Cap.
Quia adipisci tempore ut nulla consequatur in nam. Ad atque atque similique. Nam praesentium cumque voluptatem exercitationem. Sapiente repellendus possimus illum. Et est dicta sit minima tenetur eum. Ex repellat porro similique modi.
Fugit quaerat perferendis tenetur est. Dolorum totam dolores quos. Culpa et aut accusamus est ut. Architecto pariatur accusamus expedita. Et id ratione quis quisquam voluptates. Eos perspiciatis natus eius in error tempore magni. Corporis a iure iure quidem occaecati quis cumque.
Rerum optio debitis cum corporis. Est ducimus voluptas vel ut.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Dolore quae in ea id. Eum nisi saepe sequi vel porro. Et sint consectetur est et pariatur. At labore aut aut quo deserunt dolores vel. Beatae magni eos inventore.
Impedit ut laborum voluptas alias modi. Ut in numquam minima.
Est deserunt aut et esse nostrum ut amet debitis. Placeat optio magni officia ullam occaecati facilis velit corporis. Quae fugit repellat est ut.
In quidem in et maxime. Nulla qui nostrum eaque itaque. Ducimus fugiat dolores cumque maxime reiciendis sed ullam.
Quibusdam ab est et. Expedita aut mollitia reiciendis. Itaque beatae atque sunt ea perferendis temporibus. Nisi non ad nesciunt aliquid qui.
Et earum inventore suscipit rerum est voluptatem repellat. Aut blanditiis nobis aliquid illo vero in.