Private equity associate salary

Private equity associate salary DEFAULT

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Private Equity Career Path

When thinking about the private equity career path, our favorite analogy still applies: a fraternity house.

Yes, we previously compared the investment banking career path to a frat house, and private equity careers are similar in many ways.

But if investment banking is more like a “party/drinking fraternity,” private equity is more like a “business fraternity.”

The hierarchy is a bit flatter, despite seeming similar on the surface, and it’s a more intellectual environment that demands critical thinking and risk assessment in addition to sales skills.

You still have to complete certain rituals to advance, there are still levels, and you receive added benefits as you move up – but the culture and long-term trajectory differ.

In this comprehensive article, we’ll explain the advantages and disadvantages of the private equity career path, including the work, hierarchy, promotions, lifestyle, and salaries and bonuses.

But let’s start with the basics before delving into “fraternal differences”:

The Private Equity Job Description

Private equity firms raise capital from outside investors, called Limited Partners (LP), and then use this capital to buy companies, operate and improve them, and then sell them to realize a return on their investment.

The industry is called “private” equity because the companies that private equity firms invest in are private initially, or become private as a result of the investment.

The outside investors or Limited Partners might include pension funds, endowments, insurance firms, family offices, funds of funds, and high-net-worth individuals.

Imagine that you and your friends went to all your contacts, asked for money, and then decided to become “home flippers” by buying homes, fixing them up, and selling them at higher prices.

You keep some of the profits for yourselves in exchange for operating the business, but you give the majority back to your contacts for providing the bulk of the required money.

That’s what private equity firms do, but on a much larger scale and for companies rather than houses.

The job is part fundraising, part operational management, and part investing.

For more, see our articles on the private equity industry, private equity strategies and investment banking vs private equity.

Why Work in Private Equity?

If you got the “Why private equity?” question in an interview, you’d probably say that you love investing and operations, and you want to build value for companies over the long term.

But in real life, most people are drawn to private equity because it offers high compensation, somewhat better hours than investment banking, and more interesting work.

Some people also enjoy the excitement of working on large deals and interacting with “the best and brightest,” as well as understanding company operations in more depth.

Unlike investment banking, exit opportunities are not a major reason to go into private equity because PE itself is viewed as an exit opportunity.

That said, some professionals do leave the field for hedge funds and other buy-side roles (for more, see our coverage of private equity vs. hedge funds).

Private Equity Skills and Career Requirements

The private equity career path attracts people who are:

  • Competitive, high achievers who are willing to work long, grinding hours.
  • Extremely attentive to detail.
  • Interested in deals rather than simply following the markets or investing in public companies or other assets.
  • Interested in investing and operations and using critical thinking to evaluate companies rather than selling or being an agent.
  • Interested in long-term projects such as building a portfolio company over many years, and are also open to non-deal work, such as company monitoring and fundraising.

At large private equity firms (“mega-funds”), junior-level hires (“Associates”) are overwhelmingly investment banking analysts who spent years at bulge bracket or elite boutique firms.

At smaller firms, more Associates come from middle market and even boutique banks; some management consultants and Big 4 and corporate development professionals also get in.

Firms have been hiring more students directly out of undergraduate, so there are now quite a few “Private Equity Analyst” positions in the industry as well.

Getting into private equity directly after an MBA is nearly impossible unless you’ve done investment banking or private equity before the MBA.

You could complete the MBA, use it to win a full-time investment banking job, and then recruit for private equity roles…

…but that is significantly more difficult than breaking in pre-MBA from investment banking, and it’s not an ideal path (see: more on the investment banking associate job).

To get into private equity, you’ll need:

  1. A sequence of highly relevant work experience, including transactions and financial modeling.
  2. Top academic credentials (grades, test scores, and university reputation);
  3. A lot of networking and interview preparation;
  4. Something “interesting” that makes you appear to be a human rather than a robot;
  5. The ability to think critically about companies and investments rather than just “selling” them.
  6. A strong cultural fit with the firm – PE firms are much smaller than banks, so “fit” and soft skills are even more important.

For more, see our comprehensive guide on how to get into private equity.

If you want to learn all the required technical concepts – Excel, accounting, valuation, financial modeling, and LBO modeling – from the ground up, your best bet is our Financial Modeling Mastery course, which includes several private equity and growth equity case studies.

If you want to review the concepts and quickly test yourself before interviews, our IB Interview Guide includes a page guide to LBO models and 4 practice LBO case studies:

IB Interview Guide

Land investment banking offers with + pages of detailed tutorials, templates and sample answers, quizzes, and 17 Excel-based case studies.

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If you do not have the skills and work experience mentioned above, your best bet is to gain transaction experience in corporate development at a normal company or in M&A at a Big 4 firm and use that to move in.

Or, join a PE firm’s portfolio company, work on the operational side, and eventually move to the firm itself.

Do not bother with non-deal-related jobs such as equity research, or back or middle office roles.

The CFA is the only certification that means anything at all in PE; it is marginally helpful, but it plays a small role next to everything above.

The Private Equity Career Path

The private equity career path and hierarchy vary from firm to firm, but here’s a representative example:

  • Analyst – Logistical Monkey.
  • Associate (Pre-MBA) – Deal and Analytical Monkey.
  • Senior Associate – More Experienced Monkey.
  • Vice President – Manager of Deals.
  • Director or Principal – Generator and Negotiator of Deals.
  • Managing Director or Partner – Rainmaker, Fundraiser, and Chief Representative.

And here&#;s a flow-chart summary:

Private Equity Career Path and Hierarchy
We’ll look at each level in detail below, but here&#;s a summary of the age, earnings potential, and promotion time for each one:

Position TitleTypical Age RangeBase Salary + Bonus (USD)CarryTime for Promotion to Next Level
Analyst$$KUnlikely years
Associate$$KUnlikely years
Senior Associate$$KSmall years
Vice President (VP)$$KGrowing years
Director or Principal$$KLarge years
Managing Director (MD) or Partner36+$$2MVery LargeN/A

We are not going to address the exit opportunities and hours/lifestyle for each level because PE is usually the end goal, and the hours don’t necessarily change much as you move up – expect per week at smaller firms and 80+ at mega-funds.

The key differences at each level of the private equity career path lie in the work tasks, promotion time, and compensation.

Also, note that all the compensation figures below refer to figures in North America &#; they will be lower, sometimes significantly lower, in regions such as Europe and Asia-Pacific.

Private Equity Analyst Job Description

Private Equity Analysts are hired directly out of undergrad without previous full-time experience.

They work on the same types of tasks as Associates: deal sourcing, reviewing potential investments, monitoring portfolio companies, and fundraising, but they complete fewer projects independently from start to finish.

For example, an Associate working on a deal might build the entire financial model and coordinate the due diligence process, including speaking with lawyers, auditors, consultants, and other parties to get answers.

But an Analyst on the same deal might help only with specific tasks such as setting up conference calls, sifting through data, and assisting the Associate with certain research or documents.

Age Range: These roles are only for students who just finished undergrad, and they only last for a few years, so we’ll say .

Private Equity Analyst Salary + Bonus: You’ll almost certainly earn less than an IB Analyst in terms of total compensation; your salary + bonus will likely be in the $K – $K range, with the bulk coming from your base salary.

Carry, i.e., a share in the profits from investments, is unlikely-to-borderline-impossible for Analysts, so don’t even think about it.

Promotion Time: Expect years for a promotion to Associate, if your firm promotes Analysts (it varies widely).

Private Equity Associate Job Description

Private Equity Associates must be able to lead deal processes from start to finish without step-by-step instructions.

They spend their time on sourcing – generating new deal ideas – as well as financial modeling and due diligence for active deals, portfolio company monitoring, and even some fundraising.

The PE Associate role is an evolution of the IB Analyst role, so you still spend a lot of time in Excel, PowerPoint, and data rooms – but you have more responsibility and must act more independently in those tasks.

A typical day for a PE Associate might include the following:

  • Meet with their boss or other team members to discuss ongoing deals and potential ideas.
  • Build a financial model for an active deal or review and tweak an existing one.
  • Conduct a conference call with the owners of a private company that might be interested in selling to your firm.
  • Review customer contracts in the data room for an active deal.
  • Review a portfolio company’s quarterly financial results and speak with the CFO about them.
  • Assist with the fundraising process by setting up webinars with potential new Limited Partners (LPs).
  • Complete administrative work such as editing NDAs or conducting market research.

Age Range: You need several years of IB or a closely related field to get in, so we’ll say .

Private Equity Associate Salary + Bonus: Your salary + bonus will probably be in the $K to $K range, depending on the size of the firm and your performance.

Some of the large funds may pay more than $K, but we’re using the 25th percentile to 75th percentile range as a reference here.

Carry is still quite unlikely unless the firm is brand new and you’re an early hire.

Promotion Time: Expect years for a promotion to Senior Associate.

Private Equity Associate vs Analyst

As discussed above, the Associate tends to be more involved with the entire deal process from start to finish, while the Analyst might only help with specific tasks the Associate can’t get to.

The Associate is more of a “Coordinator,” and the Analyst is more of an “Assistant.”

Analysts are hired directly out of undergrad, while Associates join following several years in investment banking or a related field, such as management consulting.

Associates also earn more and are more likely to stay at the firm for the long term – if there’s a path to advancement there.

If there is no direct promotion path, Associates might complete an MBA or move into a different industry, such as hedge funds, corporate development, or strategy at a tech company.

Private Equity Senior Associate Job Description

“Senior Associate” and “Associate” are nearly the same.

The main difference is that “Senior Associate” is used to denote:

  1. An Associate who has been at the firm for a few years and been promoted directly, or
  2. An Associate who worked for a few years, went to business school, and then returned to the firm.

The work is not much different, but Senior Associates move closer to the VP-level, where they have more “manager” responsibilities.

Age Range: We’ll say because at the minimum, you must have completed two years of IB or PE Analyst work, followed by two years of PE Associate work.

Some Senior Associates may be in their low 30s because they may have switched industries after undergrad, broken into IB, switched into PE, and then completed an MBA program.

Private Equity Senior Associate Salary + Bonus: These increase incrementally over the Associate level, but not dramatically so. The range might be more like $K to $K depending on the firm size, region, performance, etc.

At this level, a small amount of carry is more plausible. You’re not going to become a multimillionaire and retire at age 35, but it might boost your bonus a bit.

Promotion Time: You’ll need years to reach the next level of Vice President.

It’s quite difficult to get promoted to VP because the nature of the job changes a fair amount at that level.

Many Associates and Senior Associates at larger PE firms realize there is no great path to VP there, so they end up going downmarket to advance.

Private Equity Vice President (VP) Job Description

In private equity, Vice Presidents are “deal managers.”

They need to convince the senior team members – Principals and Managing Directors – that they know what they’re doing so that the senior staff trusts them to manage deals.

VPs also lead and mentor others on the team, work more directly with clients, vet transactions, and lead due diligence and negotiations.

The VP role may sound similar to the Associate role, but it is very, very different.

Soft skills start to matter far more at the VP level, and you need to be a good talker and presenter to advance.

If you can prevent an important deal negotiation from falling through with some smooth talk on a conference call, that matters x more than being an Excel/VBA guru.

Very few, if any, professionals make it to this level with poor communication skills, but plenty of people with mediocre technical skills make it – as long as they talk and present well.

Age Range: The likely range here is because you must have already spent at least ~4 years in PE at the Associate levels, you probably did something before that, and you might have gone to business school as well.

Private Equity Vice President Salary + Bonus: The likely range here is $K to $K, with about half in base salary and half in the year-end bonus.

Carry becomes increasingly important at this level, which could boost your bonus a fair amount – but you probably won’t see its full effects unless you stay at the firm long-term.

Promotion Time: You’ll probably need years to advance to the Principal level.

Private Equity Principal or Director Job Description

You can think of Principals as “Partners in training.”

They have a lot of decision-making power, but they don’t have the same type of ownership in the partnership that the MDs/Partners do.

Principals leave most of the deal process management to the VPs and Associates and get involved when deals are nearing the finish line, and critical negotiations are required.

They also spend more time on sourcing deals and fundraising, and they are often the ones who convince business owners to consider a sale in the first place.

Principals also act as the go-between between the deal team and the MDs/Partners.

Age Range: It’s here because of all the previous experience you need.

Private Equity Principal Salary + Bonus: Compensation reports indicate highly variable numbers, but the 25th to 75th percentile is in the $K to $K range.

Carry becomes even more important at this level and may substantially increase total compensation.

Promotion Time: It normally takes years to reach the next level of Managing Director or Partner.

Private Equity Managing Director (MD) or Partner Job Description

Partners or Managing Directors are the king of the hill.

They spend their time on fundraising, deal origination, and “fund representation,” which could mean attending events and conferences, speaking with LPs, and doing everything required to boost the firm’s brand name and reputation.

They still spend some time reviewing deals, but they are less involved than the Principals unless it’s an extremely important deal.

Unlike the other roles here, this one depends % on human relationships – not Excel, VBA, Python, or small details in documents.

That makes it the toughest job because it’s much harder to address LPs’ concerns and convince them to invest in your new fund than it is to write an Excel formula or lead a deal process.

Oh, and one more thing: MDs and Partners must also invest a significant amount of their personal wealth into the fundto ensure they have “skin in the game.”

So… if you’re a risk-averse person, this is probably not the role for you.

Age Range: You’re unlikely to reach this level before your mid-to-late 30s, so we’ll say 36+. But that’s just the minimum – most Partners are likely in their 40s or beyond.

Many MDs and Partners stay in private equity indefinitely because there’s no reason to leave unless they’re forced out or the firm collapses.

Private Equity Managing Director Salary + Bonus: Compensation here is highly variable, but a reasonable range is $K to $2 million, with slightly less than half from the base salary.

“Senior Partners” will earn more if the firm makes the distinction.

But carry is the key driver at this level and could increase total compensation by a multiple of the range above.

For example, the senior professionals at firms like Blackstone could earn tens or hundreds of millions per year (!), largely due to carry.

However, you should keep your expectations in check: the average case for total compensation at mid-sized and smaller firms is in the low millions if you make it this far.

Promotion Time: N/A – this is the top of the ladder.

Careers Beyond the MD/Partner Level: Senior Managing Partner, COO, CEO, and More

Some firms distinguish between normal Partners and “Senior” ones; Senior Partners own a higher percentage of the partnership, earn more carry, and have more decision-making power.

At the private equity mega-funds – the likes of Carlyle, Blackstone, and KKR – there are also C-level executive positions in the hierarchy.

There is no set path for advancing into these roles, so it depends on timing, performance, and who’s planning to retire.

We’re not covering them here because there’s little tangible information about these roles, and most students and professionals won’t even make it midway up the ladder.

Private Equity Careers Pros and Cons

Summing up everything above, here’s how you can think about the trade-offs of the private equity career path:

Benefits / Advantages:

  • High salaries and bonuses at all levels, with the potential for carry to boost senior-level compensation far beyond what investment bankers earn.
  • More interesting work than investment banking and other sell-side roles.
  • Somewhat better hours than investment banking, at least at mid-sized and smaller funds, and a more predictable schedule… if you’re not working on a major deal.
  • Direct exposure to different companies, industries, and management teams, and significant responsibility even at the junior levels.
  • Firms are small, so advancement is directly linked to your performance; office politics is less of a factor than at large banks.
  • The industry is unlikely to be disrupted by technology because it’s a relationship-based negotiation and sales role at the top levels.

Drawbacks / Disadvantages:

  • Still fairly long hours and an intense work environment, and significant travel may be required, especially as you advance.
  • There may not be a clear path to advancement at your firm, depending on the firm’s size and policies and your level. And even if there is a path, advancement can be challenging because Partners rarely get “burned out” and leave.
  • You could end up doing a lot of cold calling, research, or portfolio company monitoring rather than deal execution – and even if you do work on deals, you’ll be lucky to close ~1 major transaction per year.
  • You won’t gain the same network or structured training that you would at a large bank because PE firms are so much smaller.
  • You will have to contribute a significant portion of your net worth at the top levels, which is fine if the fund performs well… but a big issue if it struggles.
  • It’s extremely tough to get into the industry if you get a late start, you’re a career changer, or you did not attend a top university and then do investment banking.

So, is private equity right for you?

Rather than assuming that it is because “everyone” does the investment-banking-to-private-equity-path, you should consider these factors and be honest about what you’re looking for in a long-term career.

If you want more of a “business frat” than a party/drinking frat, then a private equity career could deliver.

But if you don’t want to be in the frat house at all, you’ll need to consider strategic alternatives.

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

Sours: https://www.mergersandinquisitions.com/private-equity-career-path/

How to Become a Private Equity Associate

Many investment banking analysts look toward private equity (PE) as the next step in their finance careers. Private equity firms are smaller than investment banks, so there are fewer jobs and competition for these positions can be intense.

Private equity firms hire their entry-level staff as associates and typically expect at least two years of experience as an investment banking analyst. Similar to investment banks, associates at private equity firms can work extremely long hours, especially during deal closings.

Key Takeaways

  • Private equity (PE) investment involves acquiring private companies, often turning around their management and business model, and selling them for a profit.
  • Private equity associates work closely with client firms or prospects to conduct due diligence.
  • PE professionals must raise capital from outside investors, typically wealthy individuals or organizations.
  • Successful associates can earn six-figure incomes in a matter of years.

Private Equity

Most companies start out as private, but a public company can also sell out its public shares and go private if it finds the benefits to be greater. One of the biggest differences in private versus public equity is that private equity investors are generally paid through distributions rather than stock accumulation.

Private equity investors usually receive distributions throughout the life of their investment. Private equity firms mostly buy mature companies that are already established. The companies may be deteriorating or not making the profits they should be due to inefficiency. Private equity firms buy these companies and streamline operations to increase revenues. Venture capital firms, on the other hand, mostly invest in startups with high growth potential.

Private equity firms mostly buy % ownership of the companies in which they invest. As a result, the companies are in total control of the firm after the buyout.

From the perspective of a nascent company, private equity often means having to please a smaller clientele. It also means fewer restrictions and investment guidelines from regulators including the Securities and Exchange Commission.

Private equity firms attract capital from high-net-worth individuals as well as institutional investors like foundations, endowments, and pension funds. They invest the capital in privately held companies by either buying companies outright or by investing capital and partnering with the company’s management. Private equity firms make money from the fees they charge the investors and from the carried interest from investments.

Notable private equity firms include TPG Capital, Warburg Pincus, Carlyle Group, Kohlberg Kravis Roberts, Blackstone Group, and Apollo Management. Most firms are small to mid-sized investment organizations that can range from hundreds of employees to a two-person shop.

Job Description

Private equity firms are generally much smaller than investment banks and have a correspondingly flatter hierarchy. Entry-level private equity associates can work closely with firm principals and partners on every step of a deal. Associates can feel a great sense of satisfaction in seeing a deal through from its beginning to completion.

Duties as a private equity associate can include the following:

  • Analytical modeling: The primary function of the associate is to provide all analytics required for the principals and partners to make an informed decision about a deal. Common tasks include preparing preliminary due diligence reports and modeling with growth forecasts.
  • Portfolio company monitoring: Associates are usually assigned portfolio companies to monitor and must maintain up-to-date financials. 
  • Reviewing CIMs: CIMs or confidential information memorandum are documents investment banks use to provide data about new investment opportunities. Associates receive the CIMs, screen them for potential opportunities that fit within the firm's framework, and provide a simple one-page summary for the senior team. 
  • Fundraising: When new funds are being formed, associates assist with preliminary fundraising while senior executives handle most of the relationship and client interface.  

Most private equity associates stay in their positions for two to three years before being considered for a senior associate. A successful career path at a private equity firm may look like the following:

  • Senior Associate (two to three years), to Vice-President/Principal (two to four years), to Director/Partner

Education and Training

Candidates should have a bachelor’s degree in a major like finance, accounting, statistics, mathematics, or economics. Private equity firms do not usually hire straight out of college or business school unless the student has previous significant private equity internships or work experience.

The most important qualification to become a private equity analyst is two to three years prior experience as an investment banking analyst. Some firms also hire former management consultants. Getting an interview takes both a strong network in private equity and knowing the right headhunters. Most private equity firms use headhunters who serve as gatekeepers to these jobs.

Salary and Compensation

Total compensation varies widely because, on top of a salary, associates receive a bonus that reflects closed deals and income generated from deals. For entry-level associate positions, the bonus percentage is often a fixed percentage and less variable than it is for the upper-level managers.

  • First-year associate: $50, to $,, with an average of $, An average first-year salary may be $81,, with a bonus of percent of base salary.
  • Second-year associate: $, to $,, with an average of $,
  • Third-year associate: $, to $,, with an average of $,

The Bottom Line

Private equity associates participate in deals from the beginning to close. Even entry‑level associates are an integral member of the team and need to have very strong analytical and leadership skills.

Because the work is satisfying and the financial reward is great, landing one of these sought-after positions is difficult. Starting as a summer intern is perhaps the most straightforward path, but many associates also enter the field from investment banking or management consulting.

Sours: https://www.investopedia.com/articles/active-trading//how-become-private-equity-associate.asp
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Let’s take an example, your firm raises $ billion and turns it into $3 billion. To be more specific, in year 5, your firm successfully turns the initial investment into $3 billion.

The distribution split agreement between LPs and the GP is In year 0, the LPs contributed $ billion in total, while the GP contributed $ million. The hurdle rate is 8%, so the fund needs to earn an 8% IRR before it can earn anything else. 

This hurdle rate seems to be the pressure on the GP side but it’s a key tactic helping the funds to call for capital from LPs. Investing in illiquid assets, such as private equity firms, is a risky decision to make so they expect higher return. If the fund’s IRR is only 5%, the LPs will skip private equity and invest in bonds or other industries. After the LPs receive proceeds up to the 8% IRR, the GP can earn its 20% profit. 

Back to our previous example, we will demonstrate here how the funds are distributed in Year 5 with the following assumption:

  • All the capital was successfully raised in Year 0 and earned back in Year 5 (It is not often the case in reality. That capital can be raised by phases, not at once all in Year 0)
  • The split between LPs and GP is 80/20
  • The hurdle rate is 8%, meaning that the firm has to reach a minimum 8% IRR before getting any split 

Turning a $bil investment into $3bil by year 5, this private equity firm reaches 15% IRR, which is above the hurdle rate. 

At this point, someone can jump in and calculate quickly the profits of LPs and GP

  • Return profits: $ bil = $3 bil &#; $ bil (investment in Year 0)
  • LPs’ profits: 80% * $ bil = $ bil
  • GP’s profit: 20% * $ bil = $ mil 

All the numbers are right. However, we have to use a different approach, which involves the principle that LPs get proceeds up to 8% IRR first. 

  1. As IRR is 8%, LPs expect that the initial $bil investment will create $bil at the end of 5 years 
  2. Investment profits for LP at 8% IRR is: $bil – $bil = $mil. They also got back their initial investment, which was $ bil 
  3. Because GP can deliver the minimum IRR, GP will receive $million to catch up with the split 80/20 ( $/ ($ + $) = 20%) 
  4. Remaining proceeds from the investment profits are $3bil &#; $bil &#; $mil &#; $mil &#; $ mil = $ mil 
  5. The split 80/20 is applied again with the remaining. Hence, LPs get $mil * 80% = $mil; GP get $mil *20% = $mil

In total

  • LPs receive their initial investment of $bil and $bil profits in Year 5. They earn a x multiple and a 14% IRR
  • GPs get their initial investment of $mil and $mil profits in Year 5. Finally, they get a x multiple and a 20% IRR   

From this example, although contributing less, GP, or the PE firm, gets higher multiples and IRR than those of LPs. Carried interest can be very lucrative but it’s quite dangerous and stressful. If things go the other way, for example, if the fund can grow only $ billion at the end of 5 years, the IRR will be 7%, less than the minimum of 8%. Since it&#;s below the hurdle rate, the GP earns nothing despite its contribution of $ million in the beginning. Each LP of the firm will lose millions of dollars if there are other better investment options in the market.

Sours: https://bankingprep.com/private-equity-salary-bonus/
Banking vs Consulting vs PE vs VC vs Hedge Funds

Private Equity Salary and Bonus Data by Position

private equity salary

Full Private Equity Industry Report

The table above is an example of private equity salaries at various levels of seniority. You can gain access to thousands of data points across hundreds of private equity firms in the WSO Company Database.

Private Equity Pay and Carry

From pre-MBA associates to managing directors, private equity pay is traditionally heavily weighted toward the bonus portion as well as carry. Carry or "carried interest" represents the percentage of the upside return that the senior private equity professionals get to keep in the case where returns exceed a certain threshold.

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.

  1. Assume carry is 20% for a certain fund that has raised $1 billion (the most common
    level).
  2. Assume things go well and the investment professionals of that fund double the
    "value" of the fund through smart acquisitions and exits, so now they have returned $2
    billion to their limited partners (LPs).
  3. The PE fund is entitled to 20% of that incremental $1 billion of value they helped
    create for the LPs. In other words, a whopping $ million (if this fund only has
    investment professionals, the guys at the top that own a majority of it can make
    a significant windfall if their funds perform).

In practice, the exact amount that the carry portion is worth will depend on the amount of time it takes to generate returns over and above some hurdle rate (like an 8% annual return), so it's more complicated, but you get the idea.

At the pre-MBA associate level, hours are usually slightly better than an investment banking analyst, except at some private equity mega-funds. Most pre-MBA associates start after two years in investment banking or consulting and receive their first private equity bonus around June to July, approximately one year after they start working. It is rare for pre-MBA associates to receive carry, but it does happen on occasion.

Private Equity Bonus for Senior Investment Professionals

The compensation for Vice Presidents, Directors, and Managing Directors is much more variable, but the salary and bonus is usually much more of a function of the fund's performance since a lot of the compensation is tied up in carry.

See below for an estimated range of current private equity salaries.

Private Equity Compensation:

  • Analyst/Associate - First Year: $K - $K
  • Analyst/Associate - Second Year: $K - $K
  • Analyst/Associate - Third Year +: $K - $K
  • Vice President: $K - $K
  • Managing Director/Partner: $K - $10MM+


(Again, please note that, at the higher levels, private equity compensation comes with
carried interest, which is directly related to your firm's profitability and may
result in a large payout.)

These private equity salary figures are an approximation and rough range based on the user registration data on Wall Street Oasis as well as the thousands of discussions on PE compensation that the community has had at these levels.

For more details on the specific pay at certain firms, please check out our private equity industry report. Just by adding one submission you can unlock all of this data (sample below) along or pay a small monthly subscription.

private equity pay report

Interested in Private Equity? Here's What You Need to Break In

Private equity is recruiting is ten times more cut-throat than anything you've ever experienced before. If you want to break into private equity, you need to be ready for the technical aspects of the interview. The WSO private equity interview course is worth well more than the price of admission.

PE Interview Questions

Sours: https://www.wallstreetoasis.com/salary/private-equity-compensation

Associate private salary equity

Private Equity Salary (Mega Funds)

Private equity is a very lucrative career. As an asset class, private equity has enjoyed tremendous success over the past decade. Investors around the globe continue to pile their money into private equity firms. Dry powder (i.e. available cash that private equity firms can invest) hit a record high of $ trillion in There is a lot of money to go around.

Private Equity Dry Powder

Private equity firms buy companies. Then, they operate and try to improve those companies. Finally, they try to sell these companies at a profit. Private equity employees are compensated for making good investment decisions. The larger and more successful the investment, the more money there is to go around. Mega funds offer large salaries in part because they manage large quantities of money.

If you’d like to learn more about how to break into private equity, feel free to check out our Private Equity Recruiting Course.

The Private Equity Associate

The Private Equity Associate is typically the lowest ranking employee at a private equity firm. The Associate is typically a mid to late 20’s person with a prior background in investment banking, consulting, or other deal-related financial services.

In this post, we’ll do a benchmarking exercise of Associate pay at mega funds. It’s the easiest to try and standardize Associate pay because:

  • There is the greatest volume of Associates (they are at the bottom of the pyramid), so we have a lot more data to work with.

  • Associates generally don’t receive carry (i.e. a portion of profits in the fund), so we can just calculate cash and bonus salary to get to a decent answer.

  • People get dodgier about their salary as they get older, so there’s less transparency.

In short, if you’re at a top mega fund, then you can expect to get paid between $$k per year.

This is meaningfully more than investment banking associates (except at Centerview). Similarly aged top hedge fund analysts will on average make a similar amount to Private Equity Associates, but there is going to be much wider variance across hedge fund salaries. Variance in salary is one of the key differences between private equity firms and hedge funds.

Methodology

We’re going to start with the list of top funds that we outlined in our post on mega funds. These are the largest funds in the world. They manage the most amount of money and generally hire between Associates globally every single year.

We’re going to consult our reliable friend, the H1B Database, which compiles the base salaries of all US employees under the common H1B visa. We lay out the lowest and highest figure we can find for the Associate position at each firm.

Private Equity Salary Benchmarking

Observations

  • Base Salary: Most top Private Equity Associates are going to make between $k and $k for their base salary. This is what goes into your bi-weekly paycheck. Congratulations, you’ve almost already cleared what an Investment Banking Analyst makes!

  • Bonus: The bonus is a lot harder to standardize, but from my personal experience and that of my peers, the bonus range is typically around % of the base salary. This depends a lot on the fund performance, group performance, and your own performance. The bonus is a lump sum cash payment that is paid annually.

  • All-In Comp: When you combine the base salary and the bonus, you get your all-in compensation. I think this bonus % is a little bit on the conservative side and I would say an appropriate range is $k to $kall-in compensation as an Associate. As a separate data point, the chart below from GoBuyside compiles survey data they received. At fund sizes greater than $5B, the all-in compensation is on average $k.

  • Apollo Global Management: Apollo Global Management is frequently reputed to be the highest-paying firm on the street in terms of all-in compensation, paying their Associates upwards of $k per year. They have an enormous fund and have an incredible track record of success. They also have a reputation of being pretty intense, but hey, this is private equity we’re talking about.

  • Annual Raise: The Private Equity Associate program typically lasts years. This is more anecdotal, but each year, you can expect between a $25k to $50k raise. This amount will balloon when you get promoted.

This is a great chart from GoBuyside that shows how your fund size really does impact how much you’re able to make. The bigger your fund, the more management fees you can get and the bigger the deals you can do. This is also why asset classes like VC and Growth are systemically slightly lower paying (they invest in smaller companies).

GoBuyside Private Equity Associate Salary

There are two other factors in private equity that can materially drive how much money you make: carry and co-invest.

Carry

Private equity firms are paid based on how much profit they can generate from their investments. They are given a portion of this profit, which is known as “carry”. The thing is, most associates don’t get carry. At mega funds, it’s essentially unheard of, and even at sub $1B funds, fewer than 1/5 of people get carry.

I think this is partially because the Associate position is relatively high attrition, and it’s annoying to give Associates carry when they might leave in the next year or so. Private equity fund duration can be up to 10 years and carry payments aren’t going to be received evenly over the course of a couple of years, so it’s tough to divvy up.

Private equity firms also have no incentive to give their precious carry to the Associate. It’s not the market standard and Associates already get paid a very high amount for their age.

Co-Invest


Co-investing occurs when you can invest alongside the private equity firm into a deal or fund. This means that when the firm buys a company, you can throw in some money and get some equity in the business. If your fund does what a private equity firm is supposed to and returns %+ annually, then you might be able to grow your money quickly and safely by co-investing.

The ability to co-invest is theoretically pretty cool because a lot of mids people aren’t going to have access to attractive alternative investments. Note that less than half of all funds even allow co-invest.

One important consideration is that co-investing will have the illiquidity issues that private equity as an asset class has. If you have a large payment coming up (e.g. business school, buying a house, etc.), it might be hard to have a lot of money tied up in a private market investment that you can’t sell out of.

Conclusion

All things considered, you’re going to make $k to $k at a top private equity fund as an Associate.

It’ll be interesting to see whether these salary levels are going to remain this high over the next few years. As more money flows into the asset class and more deals get completed, it definitely seems that way.

Sours: https://www.peakframeworks.com/post/private-equity-salary
Investment Banking Associate Pay and Career

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