My mrs is being tapped up for a portfolio manger role in a distressed debt (asset manager). The company is a start up in the UK, but has bought the fund from someone like lonestar … I told her it was only worth it if there was a carry…
The base and bonus should be good, but do you know how the carry works in the distressed debt fund?..
What do you mean? If you’re asking what carry is because you dont know…see below.
Standard carry in most private strategies is 20% after an 8% preferred return compunded annually. In FoF, it will likely be lower since there would be a double layer of carry. The carry will be allocated usually among the partners of the firm with another smaller portion to be split among the junior professionals
If you’re asking what the specific carry structure and % will be at your wife’s company…um you should ask the company…no way we would know that. Not sure what you’re trying to ask in saying how does carry work in a distressed debt fund…it works like it does in any other fund…the specifics like I said though would be up to the company.
Standard carry in most private strategies is 20% after an 8% preferred return compunded annually. In FoF, it will likely be lower since there would be a double layer of carry.
20% of what? I get the 2 and 20 where the funds fees are 20% of all returns in excess of 8% are paid out in fees, but I don’t understand how the individual participates in this directly.
Thanks.
I guess is they buy the book for 25p in the £ and she restructures etc she can recoup 30p in the £, then that’s a 20% return? The manager will take all of that as profit minus the cost of capital which i presume is some sort of warehouse line with another bank…
She would get a % of the profits above the cost of capital?
The fund fees are 2%. The 20% is 20% of ALL profits above cost. The investor gets 8% first…then the GP catches up to those profits until they get the same return, then all is split 80/20 thereafter…thats a market carry…but there can be various negotiated structures including tiered carried interest based on IRR and/ TVPI hurdles. The GP gets the payment and whoever encompasses the GP (usually partners) gets the % that they agree amongst themselves and allocate some portion to other firm employees…usually some kind of pool.
No, its not a % return…its a % of profits after a preferred return to LPs. If it is deal-by-deal, then in your scenario if the total return is greater than the preferred return (generally 8% compounded annually), then the LP will get their cost + 8%…then the GP will catch up assuming a full catch-up getting 100% of profits until their return equals the LP preferred return, and then the remaining profits are split 80/20, LP/GP.
Carry is accrued and subtracted from the funds net NAV…it can fluctuate depending on the valuation of deals. If the carry is deal-by-deal…they will take carry once the deal is exited. If it is European style, then it is accrued based on all deals and paid out as carry distributions when cash allows.
Yeah the 8% rate in private equity is a soft hurdle, not hard. So GP gets 20% of all net profit, which can run into billions on the mega funds.
Still better than HF world (from LP perspective that is) where there is no hurdle at all usually! Although management fee is paid on NAV rather than committed capital so I guess it balances out.
How senior will your wife be in the new firm? Some firms don’t allocate carry below partner level, whereas others do. Even in the latter cases though, the partners are going to get the lion’s share.