Assume carry is 20% for a certain fund that has raised $1 billion (the most common level). sharing the profits made from the investments. Let's quickly run through an example to explain how carry works and why it can be such a large portion of the compensation at private equity funds.
Private Equity Compensation Structure. Therefore, compensation is quite different from what you would encounter in a typical corporate environment, or within investment banking.
The whole private equity business model is based on "profit sharing" i.e.
These are cash payments made each month during the year (base salaries), with one lump-sum payment at the end of the year (the bonus).
Management fees and deal fees tend to pay for base salaries since these fees are fixed. On the “Uses side,” private equity salaries and bonuses are straightforward.
Assume things go well and the investment professionals of that fund double the "value" of the fund through smart acquisitions and exits, …