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Overview
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 $2.5 trillion in 2019. There is a lot of money to go around.
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.
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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 $350-$400k per year. These numbers reflect total compensation paid to private equity associates in 2022.
Private equity pay increased in 2022, largely driven by competition from other professions such as investment banking and big tech paying large salaries in 2021.
We note that similarly-aged hedge fund analysts on average make a similar amount to private equity associates, but there is a 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 by ranking all of the private equity firms in the world based on their latest flagship fund size. The flagship fund typically refers to the main fund that a private equity firm is going to invest out of.
Flagship fund size tends to be correlated with what private equity firms pay their employees, as employee salaries are partially paid by the management fees on funds.
Note that this ends up being a list of the largest private equity funds and asset managers in the world. They manage the most amount of money and generally hire between 6-12 Associates globally every single year.
Next, we’re going to consult our reliable friend, the H1B Database, which compiles the base salaries of all U.S. employees under the common H1B visa. We lay out the lowest and highest figure we can find for the Associate position at each firm, exercising some judgment to ignore outliers.
We then apply a bonus range of 150-200%, which is the approximate range paid to associates in 2022. This bonus range was derived from industry sources and cross-referencing other compensation studies.
We recommend examining the Heidrick & Struggles report if you are interested in looking at more data regarding private equity compensation.
Observations
Base Salary: Most top Private Equity Associates are going to make between $125k and $145k for their base salary. This is what goes into your bi-weekly paycheck.
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 150-200% 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 $350k to $400k all-in compensation as an Associate. A
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 $450k 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 2-3 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.
Below is a summary chart from the Heidrick & Struggles report that looks at private equity compensation by role. We note that this data looks at 2021 compensation and is self-reported.
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 15-20%+ 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 mid-20s 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 $350k to $400k at a top private equity fund as an Associate.
