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How to Think About PE Compensation
Is $350k Average as a PE Associate?
When I first entered the financial services industry, I was told that my earning potential would be tremendous. For my first year in investment banking, I didn’t fully understand or appreciate what that meant.
Since most analyst salaries are public knowledge, it can be difficult to conceptualize how compensation scales as you move up in your career.
Since moving into private equity almost two years ago, my awareness of compensation structures and what to prioritize in packages has grown.
You may have heard of the three elements that generally determine PE compensation: base, bonus, and carry. But what a lot of young professionals don’t have a good understanding of is how to think about each element and weigh packages against each other, especially when firms are comparable in terms of qualitative elements.
In this article, we’ll discuss how to think about each of the three components of PE compensation and how you might think about whether a package is “good” for your personal needs in the context of the firm you may be choosing.
According to your knowledge, what does the average PE Associate make in the US?All in compensation including Base + Bonus |
Base Salary
Generally, a base salary in PE is not entirely different from that of an investment banker or some other finance professionals.
While the base salary will likely help you cover most or all of your monthly living expenses (especially if you are living within your means), it isn’t where PE professionals make most of their money.
Bonus
Important component of your PE compensation package is your bonus. Bonuses can vary wildly across the industry. Some might be almost guaranteed, some are highly performance-based, and some are market-based or tied to other success metrics. The amount can also vary across firms depending on those aforementioned factors or simply because of the way the firm structures packages.
You’ve probably heard the wisdom to invest at least a portion of your bonus, use some for fun/work towards whatever financial goals you may have for yourself. I aim to abide by this and in the past two years I haven’t invested my full bonus; instead, I invest a portion as soon as I receive it and allocate the rest for travel and other goals.
Carry
Now let’s get to the fun part and the portion of compensation where PE professionals win big: carry.
If you are unfamiliar with carry, also known as carried interest, the general concept is getting paid out when your investments do well (either throughout the hold period via dividends or via a lump sum at exit, which is typically where the majority of payment occurs).
As a junior financial professional, you may or may not have access to carry yet depending on the stage of your career. When you’re evaluating an offer, try to learn what the carry structure is like at the firm.
How senior do you need to be to receive carry?
How many funds can you be exposed to / invest in each of them?
Are there co-investment opportunities to directly invest in deals alongside LPs?
How long is the vesting period (i.e. how long do you need to stay to get your full carry, and if you leave early how much of it do you get)?
Get as much information as you can from market intelligence and speak to professionals at the firm to determine whether you think it’s a good deal.
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