Apax offers waterfall option to retain junior talent

The buyout firm will give LPs the choice to opt into a deal-by-deal style waterfall in a portion of its next flagship fund.

For its next flagship fund, Apax Fund IX, Apax Partners will offer LPs the choice to be paid out through a deal-by-deal style waterfall instead of the usual European-style fund model, according to a source familiar with the situation. 

Although it is not clear when Apax Fund IX will launch, it will likely target $7 billion to $8 billion in LP commitments. Approximately $2 billion of that committed capital will be allocated to the deal-by-deal structure and LPs will be offered that option on a first-come, first-served basis.

The firm chose to offer deal-by-deal carry in order to better compensate and retain junior level talent, the source said. The carry earned through the deal-by-deal portion of the fund will not be available to Apax’s equity partners.

Apax declined to comment.

Apax’s new carry model, which was first reported in Buyouts, reflects a recent trend in European private equity funds, which Simpson Thacher partner Jason Glover described to Private Equity International's sister title pfm as a “significant move in the marketplace.” 

More European GPs are deviating from the per-fund carry model as they have found it can create a misalignment of interest with investors.

Executives having to wait at least seven to eight years before being in receipt of carry payments diminishes the value of the carry from a net present value perspective, particularly in the eyes of younger executives; instead such executives are incentivised to generate more immediate personal wealth through salary and bonuses, noted Glover.