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
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.
Where do private equity funds get their money? ›
A source of investment capital, private equity comes from firms that buy stakes in private companies or take control of public companies with plans to take them private and delist them from stock exchanges. Private equity can also come from high-net-worth individuals eager to see outsized returns.
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 does private equity pay out? ›
On the “Uses side,” private equity salaries and bonuses are straightforward. These are cash payments made each month during the year (base salaries), with one lump-sum payment at the end of the year (the bonus).
How much do private equity owners make? ›
In the previous articles on the private equity career path and private equity salaries, we quoted a base salary + bonus range of $700K to $2 million USD for Partners. This compensation range is wide because so much depends on the fund size, your seniority, and the fund's performance.
Do private equity firms use their own money? ›
Even though private equity firms generally invest little of their own money into acquisitions, they typically receive both a small percentage of a company's total assets (usually 2%) as a management fee and a 20% cut of resulting profit from a sale of the company, all of which the U.S. government taxes at a significant ...
How long do people stay in private equity? ›
Typical private equity salaries (US)
| Position | Typical Time in Role | Bonus |
|---|
| Associate | 2 – 3 Years | $50k – $150k |
| Senior Associate | 2 – 3 Years | $100k – $200k |
| Vice President | 3 – 4 Years | $200k – $500k |
| Director | 3 – 4 Years | $250k – $600k |
2 more rowsApr 9, 2024
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.
What is the 2 20 rule in private equity? ›
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.
How much does a private equity VP make? ›
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 |
The base salary is lower than for public company CEOs, typically around $1 million vs. $1.2 million, and bonuses are tied to clear, aggressive goals. If a CEO doesn't reach them, there is no bonus. But the CEO also gets a large grant of stock options, typically representing 2% to 3% of the company's total equity.
Is principal higher than VP in private equity? ›
Principals are the next most senior role and usually need to have several years of experience as a VP before making the leap. Principals are evaluated on their ability to find promising companies and close deals on them.
How much does a private equity CFO make? ›
Cfo Private Equity Salary
| Annual Salary | Monthly Pay |
|---|
| Top Earners | $257,500 | $21,458 |
| 75th Percentile | $182,500 | $15,208 |
| Average | $151,302 | $12,608 |
| 25th Percentile | $101,500 | $8,458 |
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 the highest salary in private equity? ›
Private Equity Associate salary in India ranges between ₹ 3.0 Lakhs to ₹ 45.0 Lakhs with an average annual salary of ₹ 11.3 Lakhs. Salary estimates are based on 142 latest salaries received from Private Equity Associates.
Is private equity a stressful job? ›
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.
How do private equity funds start? ›
Starting a private equity fund means laying out a strategy, which means picking which sectors to target. A business plan and setting up the operations are also key steps, as well as picking a business structure and establishing a fee structure.
Where does equity money come from? ›
Equity can be defined as the amount of money the owner of an asset would be paid after selling it and any debts associated with the asset were paid off. For example, if you own a home that's worth $200,000 and you have a mortgage of $50,000, the equity in the home would be worth $150,000.
How do I get investors for a private equity fund? ›
Such steps may include:
- Selling shares as part of the IPO.
- Securing a strategic acquisition or, in other words, selling your business to another suitable company.
- Allowing private investors to sell their stakes in the business to another private equity firm.
- Repurchasing equity states from private investors.
Independent private equity and venture capital firms typically raise money from institutional investors such as pension funds, insurance companies and family offices.
