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I'm going to side-track a bit, but since I'm being courted by PE I thought I'd ask. >> The employees of the PE also co-invest Is this voluntary, or mandatory?

I'm going to side-track a bit, but since I'm being courted by PE I thought I'd ask. >> The employees of the PE also co-invest Is this voluntary, or mandatory? I ask because I've seen clauses along the lines of "75% of bonuses are paid in shares, not available for sale for 5 years." Using bonus money to buy shares props up the share price, but delays the employee actually seeing the bonus for 5 years. Seems pretty win-lose to me, and kinda puts me off. Is this a standard practice you mean by co-invest? (As an aside, I'm not a fan of buying shares where I work, that's not a good portfolio-diversification model. If the business goes under it's not good to lose both your job, and investments, on the same day.)

works_at_pe 11d ago
Differs by company. Best thing you can do: check CalPers (CA pension: https://www.calpers.ca.gov/investments/about-investment-office/investment-organization/pep-fund-performance https://www.calpers.ca.gov/investments/about-investment-offi...) listing of investments for your PE's internal rate of return and historical performance for some funds. There is carry and co-invest. Carry is a grant (like options). Co-invest is additional funds that you commit for capital calls when the fund invests. My comp is base + cash bonus (1.#x base) + carry (~2/3 of my base every year for 10 years). Yes, locked away until some distribution event. Bonus is cash (YMMV), but if you don't already have the capital for a capital call, you're right that your bonus effectively ends up in the fund to meet capital call requirements at some point. Co-invest is "strongly recommended at the amount specified". Legally, they cannot compel you to, but basically the way it is worded... Should you co-invest? Look at CalPers for realistic rate of returns. Look at the PE portfolio; do you think it holds? Ask them to walk you through a case study of their timeline with a successful portfolio co. CalPers is not playing around. Some funds will 3x, 4x over the lifetime (historical performance not indicative of future perf). You pay capital gains tax on that earning. Best case: you already have the cash to cover the co-invest capital calls. Worst case: you are borrowing money or using your bonus to plow more into the portfolio.
- bruce511 11d ago
  Thanks

works_at_pe 11d ago

Differs by company. Best thing you can do: check CalPers (CA pension: https://www.calpers.ca.gov/investments/about-investment-office/investment-organization/pep-fund-performance https://www.calpers.ca.gov/investments/about-investment-offi...) listing of investments for your PE's internal rate of return and historical performance for some funds. There is carry and co-invest. Carry is a grant (like options). Co-invest is additional funds that you commit for capital calls when the fund invests. My comp is base + cash bonus (1.#x base) + carry (~2/3 of my base every year for 10 years). Yes, locked away until some distribution event. Bonus is cash (YMMV), but if you don't already have the capital for a capital call, you're right that your bonus effectively ends up in the fund to meet capital call requirements at some point. Co-invest is "strongly recommended at the amount specified". Legally, they cannot compel you to, but basically the way it is worded... Should you co-invest? Look at CalPers for realistic rate of returns. Look at the PE portfolio; do you think it holds? Ask them to walk you through a case study of their timeline with a successful portfolio co. CalPers is not playing around. Some funds will 3x, 4x over the lifetime (historical performance not indicative of future perf). You pay capital gains tax on that earning. Best case: you already have the cash to cover the co-invest capital calls. Worst case: you are borrowing money or using your bonus to plow more into the portfolio.

bruce511 11d ago
Thanks