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.
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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."
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FAQs
Private Equity Managing Director Salary + Bonus: Compensation here is highly variable, but a reasonable range is $700K to $2 million, with slightly less than half from the base salary. “Senior Partners” will earn more if the firm makes the distinction.
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 to negotiate salary in private equity? ›
Quantifying Your Value to the Firm: To argue for a higher salary, you must clearly demonstrate the value you have added to the firm. This could include specific deals you've spearheaded, fund performance under your management, or new investor relationships you've cultivated.
How much does a 30 year old in private equity make? ›
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 rowsVice 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 |
Private equity owners make money by buying companies they think have value and can be improved. They improve the company or break it up and sell its parts, which can generate even more profits.
What is the 8 20 rule in private equity? ›
The performance fee is only charged when the fund's profits exceed a prior agreed-upon level. A common threshold level used is 8%. That means that the hedge fund only charges the 20% performance fee if profits for the year surpass the 8% level.
What is the 2 20 rule in private equity? ›
This is also known as the “2 and 20” fee structure and it's a common fee arrangement in private equity funds. It means that the GP's management fee is 2% of the investment and the incentive fee is 20% of the profits. Both components of the GPs fees are clearly detailed in the partnership's investment agreement.
What is the average income for private equity? ›
What Is the Average Private Equity Firms Salary by State
| State | Annual Salary | Monthly Pay |
|---|
| California | $89,038 | $7,419 |
| Maryland | $88,832 | $7,402 |
| Tennessee | $88,240 | $7,353 |
| Utah | $87,969 | $7,330 |
46 more rowsMastering the art of salary negotiation requires a harmonious blend of research, confidence, and strategic finesse. The #1 rule, "Know Your Worth and Articulate It Confidently," encapsulates this holistic approach.
Private equity associates at top mega funds have the potential to earn substantial compensation, making it a lucrative career choice in the finance industry. Private equity associates at these firms can expect to earn between $275,000 and $398,000 in total compensation per year, including their base salary and bonuses.
Is private equity a stressful job? ›
Work-life balance strategies for private equity professionals. Pursuing a career in private equity can be incredibly rewarding, but it often comes with significant stress and demanding work hours. Maintaining a healthy work-life balance is crucial for sustaining long-term success and personal well-being.
What is the rule of 80 private equity? ›
For example, 80% of wealth is owned by 20% of the population. The same is true of investment costs: if 20% of assets are invested in private markets (private equity, private debt, infrastructure, real estate etc) they may well account for 80% of total costs.
How much does a VP at KKR make? ›
The estimated total pay range for a Vice President at KKR is $261K–$429K per year, which includes base salary and additional pay. The average Vice President base salary at KKR is $186K per year.
What is the average bonus in private equity? ›
Bonuses are usually 100-150% of salary, paid in cash. Carried interest (or “carry”) is a bonus based on the performance of investments that accrues to partners or senior investment professionals. It is typically given to vice presidents and above.
Is private equity a good career? ›
Pursuing a career in private equity can be incredibly rewarding, but it often comes with significant stress and demanding work hours. Maintaining a healthy work-life balance is crucial for sustaining long-term success and personal well-being.
How much do private equity CEOs make? ›
How much does a Private Equity Ceo make? As of Sep 8, 2024, the average annual pay for a Private Equity Ceo in the United States is $82,146 a year. Just in case you need a simple salary calculator, that works out to be approximately $39.49 an hour. This is the equivalent of $1,579/week or $6,845/month.
How much do the top private equity earners make? ›
While CEOs in major banks like Goldman Sachs and JPMorgan may earn around $36 million in total compensation, top private equity professionals can command much larger salaries, exceeding $100 million. This substantial compensation differential can be attributed to several factors.
