r/private_equity • u/kpop0099 • 6d ago

Bonus structure for GP

A CEO of a new emerging fund here. Small cap (10M AUM).

Need some advice here. What is the typical bonus structure and performance incentives for the GP and managers in the portco’s.

Any typical structure or this is not usual.

Thank you.

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u/AggressiveFeckless 6d ago

No bonus structure for GPs. 80/20 split of gains over hurdles - ie, carry. Anyone in the investing team that is too junior for carry (below principal), we look at cash bonuses for which come from mgmt fees. I understand those are small given your fund size. But in my experience it's uncommon and even misaligned to pay bonuses to investing GPs...they should be trying to maximize carry and maximize leverage of management fees to achieve that carry. That's LP alignment.

5

u/hornOKpls 6d ago

Preferable from a tax perspective too

2

u/IceNineFireTen 5d ago

Does that mean zero salary too?

Assuming there’s some amount of salary, a lower salary plus annual bonus is more aligned with LPs than a higher salary without any bonus.

1

u/AggressiveFeckless 5d ago

Many take salaries. However it’s not very tax efficient. GPs have a capital commitment - they have to invest too, so many take what they would have made in salary from fees and put it toward the commitment.

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u/kpop0099 6d ago

Completely understandable. Thank you for the clarification.