Private equity firms might be having a few issues with costs and exiting their investments, but this has not prevented them from paying very handsomely.
US recruitment consultancy Heidrick & Struggles has released its 2023 compensation report for North American private equity firms, and the numbers are impressive.
Although salaries and bonuses and private equity firms are a healthy chunk of cash (and always have been), the real money is, as always, in the carried interest. This is the percentage of a successfully executed private equity deal that those that worked on it (from partner to associate) get to keep. When deals are exited successfully, it can be very high indeed.
Get Morning Coffee in your inbox. Sign up here.
Heidrick & Struggle’s data suggests that at the top end, a managing partner in a private equity firm with at least $1bn in Assets Under Management (AUM), can expectto earn at least $3.5m in salaries and bonuses, plus around $35m in carried interest over a fund's lifecycle (typically around five years).
The higher the assets under management, the higher the carried interest. Although exact numbers are scarce for managing partners at megafunds with over $10bn in AUM, Heidrick & Struggle’s data suggest that an MD at such a fund could earn $100m at such a firm in carried interest.
If you're planning to become managing partner at a fund with $10bn under management, all of this sounds really great - providing that the future resembles the past. For the moment, however, many private equity funds are struggling to exit investments and so carried interest may not be forthcoming, or certainly not at the levels of the recent past. - Which is probably why funds like Apollo are suddenly keen to skew compensation towards carried interest as an incentive for partners to help climb out of the whole.
Many people in private equity also don't receive carried interest at all. You'll need to be an investment professional to get it. Heidrick & Struggles says some associates receive it, but even in a good year their payouts are predictably smaller. However, Heidrick says that even associates at funds with over $40bn in AUM can (or could) expect $4m in carried interest, which explains private equity careers' enduring appeal to juniors in investment banks.
Heidrick & Struggles don't say explicitly that private equity pay is likely to fall from these heights. They do say that pay will probably remain stable next year, with "exceptions."
Click here to create a profile on eFinancialCareers. Make yourself visible to recruiters hiring for top jobs in technology and finance.
Have a confidential story, tip, or comment you’d like to share?Contact: +447537 182250 (SMS, Whatsapp or voicemail).Telegram: @SarahButcher.Click here to fill in our anonymous form, or email editortips@efinancialcareers.com. Signal also available.
Bear with us if you leave a comment at the bottom of this article: all our comments are moderated by human beings. Sometimes these humans might be asleep, or away from their desks, so it may take a while for your comment to appear. Eventually it will – unless it’s offensive or libelous (in which case it won’t.)
FAQs
Examples of solid answers to the “why private equity” question: You want to work with companies over the long-term instead of just on a single deal. You want to get exposed to the operations of companies and understand all aspects rather than just the financial ones (note: “exposed to,” not “control” or “improve”).
What is the payout structure for private equity? ›
The standard fee structure in the private equity industry is the “2 and 20” arrangement, which includes a 2% management fee and a 20% performance fee. The actual payout can become complicated, however, due to factors like the catch-up clause and clawback provision.
How much do you really make in private equity? ›
Private Equity Salary, Bonus, and Carried Interest Levels: The Full Guide
| Position Title | Typical Age Range | Base Salary + Bonus (USD) |
|---|
| Associate | 24-28 | $150-$300K |
| Senior Associate | 26-32 | $250-$400K |
| Vice President (VP) | 30-35 | $350-$500K |
| Director or Principal | 33-39 | $500-$800K |
2 more rowsPrivate equity firms buy companies and overhaul them to earn a profit when the business is sold again. Capital for the acquisitions comes from outside investors in the private equity funds the firms establish and manage, usually supplemented by debt.
How hard are PE interviews? ›
Private equity interviews can be challenging, but for most candidates, winning interviews is much tougher than succeeding in those interviews. You do not need to be a math genius or a gifted speaker; you just need to understand the recruiting process and basic arithmetic.
How to crack private equity interview? ›
Private Equity Interview Questions & Answers
- Technical knowledge (finance, accounting, modeling)
- Transaction experience (deals you've worked on)
- Firm knowledge (what you know about the PE firm)
- Fit and personality (how well you fit in with the culture of the firm)
The 2 and 20 is a hedge fund compensation structure consisting of a management fee and a performance fee. 2% represents a management fee which is applied to the total assets under management. A 20% performance fee is charged on the profits that the hedge fund generates, beyond a specified minimum threshold.
What is the rule of 72 in private equity? ›
The Rule of 72 is a convenient method to estimate the approximate time for invested capital to double in value. By merely taking the number 72 and dividing it by the rate of return (or interest rate) expected to be earned, the output is the approximate number of years for an investment to double.
How does private equity pay work? ›
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.
How much does a VP make in private equity? ›
Vice President Private Equity Salary
| Annual Salary | Monthly Pay |
|---|
| Top Earners | $244,500 | $20,375 |
| 75th Percentile | $190,000 | $15,833 |
| Average | $157,532 | $13,127 |
| 25th Percentile | $115,000 | $9,583 |
but nowhere near as much as in management consulting. While the travel will be less, the work in private equity is very stressful and demanding, so the hours you actually spend working may be more stressful or mentally demanding.
Is private equity a prestigious career? ›
Working at a Private Equity Firm
The private equity business attracts some of the best in corporate America, including top performers from Fortune 500 companies and elite management consulting firms.
What is the payout structure of private equity? ›
As the general partners (GPs), the private equity firm will usually charge investors based on a “2 and 20” compensation structure. The 2 and 20 is a compensation structure consisting of a two percent management fee and a 20% performance fee.
How do private equity funds pay out? ›
The investors in the funds first receive any distributions generated by a fund and it is only when these returns pass a certain point, known as the 'hurdle rate' (typically around 8%), that the private equity or venture capital firm receives any pay-out, known as carried interest.
Why do people in private equity make so much money? ›
PE firms make money by taking public companies private. Theoretically, they then improve these companies by making them more efficient and productive, ultimately reaping their just rewards for these improvements when they either take the company public again or sell it to the highest bidder.
What is private equity easily explained? ›
Most concisely, private equity is the business of acquiring assets with a combination of debt and equity. It is sufficiently simple in theory to be frequently compared to the process of taking out a mortgage to buy a home, but intentionally obfuscated in practice to communicate a mastery of complex financial science.
How to answer why KKR? ›
As a leading global investment firm with a strong track record of success, kkr.com is an organization that aligns with my personal values and professional goals. I am drawn to the company's reputation for excellence, innovation, and commitment to making a positive impact on the world through its investments.
How do you stand out in a private equity interview? ›
Show your personality: Headhunters meet with dozens of investment bankers every day, so you need to be able to stand out with your own unique personality. Beyond the actual interview, create small talk with all of the people you meet at the headhunting firm and be able to talk about more than just finance.
How do you answer equity interview questions? ›
To prepare for interview questions on equity and inclusion, research the company's values and history to determine commonalities between your values and the company's, then create a list of questions you may hear. When you compose your answers, draw on your own experiences and keep your answers authentic.
