For ops team members who get a carry, what is a good way to estimate how it translates into comp?
How close is it to what is in the Heidrick & Struggles comp survey has? How big of a gap between ops and deal team?
https://www.heidrick.com/en/insights/private-equity/2021-north-american-private-equity-investment-professional-compensation-survey
$250,000 worth of carry in a fund that realizes in five years = 250000/5 is stupid simple math. Could also run DCF.
Depending on performance of my firms latest fund, I’m looking at between $0.8-1.3m in carry. The 2019 ops h&s comp report is pretty close.
MD1 clearly does not know what they are talking about. Typical math is to assume a 2x fund-level MoM to compute your “dollars at work” from your basis point allocation. From there you have to assume no payout for 3-4 years as you make investments, and then realized over the next 3-5 as you exit. In reality it will be chunkier, but an average helps. Depends on how your fund works but the other variable is whether your allocation changes year to year based on performance / promo- but best to be conservative
Yeah I agree with BCG1.. i tend to not think of my carry to much, it’ll be a great thing once it materializes. But I’m 3 years in and haven’t received a carry check yet.. be conservative.
Looks like I need to clarify? I skipped the MoM part of the analysis because as you stated, it’s pretty standard. The example was the carry award expected based on the fund’s projected performance using exactly what you outlined. For my team, we break down their comp sheets with cash, then carry awards based on base case projections and life of the fund then allocate it over that time period evenly so that we can show estimated annual compensation. VP ops makes a good point. Carry is Monopoly money until it’s realized and it takes a lot longer than you’d think after an exit to get those checks. I would also say that if you are at an associate level and your carry is not worth something in the millions or the high 100,000s, then IMO you should push for cash because carry can’t pay the bills.
None of this makes any sense. It shouldn’t take more than a month or two after close to get your payout - as soon as the wires hit
Sometimes that’s true, absolutely BUT more often than not in my experience only… depends on what kind of fund and how many exits the fund has before fully liquidated or recapped (in part or in full).