PE Career Earnings over $50 million by 50?
I have been working in MM PE in the midwest for almost a year now since I moved here from NYC MM IB. I thought it would be interesting to see what total career earnings look like in MM PE. My firm offers carry to associates and the position also puts all associates on a partner track with or without an MBA.
Using data from PE/VC surveys and making several major assumptions about the markets, company politics, career growth, I have built out a simplified MM PE career earnings forecast on google sheets (link below). The forecast assumes that I'll work until I'm 45 with the same firm (which I'm assuming will aggressively grow fund size and AUM) until I retire, ignores growing wealth from investing, dividends, savings, etc.. and considers three scenarios for average performance across future funds (I had very little downtime to build this so don't criticize me for being overly ambitious with my assumptions) -
1) Base Case of 1.5x net MOIC -> Total Career Earnings ~$50 million
2) Average Case of 2x net MOIC -> Total Career Earnings ~$66 million
3) Best Case of 2.5x net MOIC -> Total Career Earnings ~$83 million
4) Dream Case (rare) of 3x net MOIC -> Total Career Earnings ~100 million
What are your thoughts on this? Is it really true that you can make cumulatively over 50 million dollars by working until the mid-40s in PE/VC? Do you have any suggestions on how I could/should improve or adjust my forecast in the google sheet linked below?
Here is the google sheet that I performed all my calculations on-
https://docs.google.com/spreadsheets/d/1NeEK1uJyKHKbek0uTme9HW2DtSLKdoQ3bAtSpT9Ot1M/edit?usp=sharing
following
is this assuming you don’t start your own firm? How do you think the career earnings compare to IB all the way through?
For the sake of simplicity, I just considered total comp if I decide to stay with the firm. That's just one of the thousand paths available to PE Associates and I didn't want to adjust for other nuances that could affect my future comp in my mid-30s if I decide to switch to another PE/VC fund, portfolio company, or start my own fund - some of these options could lead to giving up carry so I didn't want to complicate the calculation either. As far as IB is concerned, I remember someone else built out an excel sheet for 10-year career compensation trajectory comparing pay in IB/Consulting/Law/Engineering/ Medicine in case you're interested. However, shouldn't be all that difficult to build an earnings forecast for IB given the fact there is so much data out there.
gotcha sweet. any chance you can link that?
https://docs.google.com/spreadsheets/d/1h1N6rrvLRmapN2fwreSBL45I89azg2t…
Is 1mm at VP really feasible??
Certainly depends on when you get carry (Assoc/Sr. Assoc/VP level) and when it starts to bear fruit (fund performance, fund-level or deal-by-deal distribution and the waterfall). In this case, the back loaded carry received by an associate will largely pay off at VP level and above.
Now I fully understand the appeal of PE
Fuck no lol
so your worst case career scenario is managing partner at a firm with a $3bn fund? and that firm is able to consistently raise larger and larger funds despite delivering subpar returns?
I'm clearly being very very optimistic here ignoring all the hard earned effort and politics that go into promotion, raising funds, etc... and of course being an intelligent investor with a cohesive/sharp team focused on a high-growth sector/industry - it's more of a base case for returns of 1.5x at an aggresively growing MM firm (than a worst case scenario - pardon my choice of words). Funds wind down, people quit, jump ship, heck even retire early all the time. Like I said, I'm open to suggestions to improve the calculation so if you have any recommendations I'm happy to make adjustments.
Dude the OP already mentioned that he is making very ambitious assumptions and expecting to stay and grow his career with the same firm for the rest of his working life which doesn't happen too often either. I'm guessing its very difficult to adjust inputs for such a model given thousands of scenarios where people get burnt out, not get promoted, lose interest in the industry, want to get an MBA, spend more time and travel with family, move to another country etc.. and such things are nearly impossible to account for in a model. The OP is definitely being bullish about his career and the firm and hoping for the best but that doesn't mean the calculations are wrong if he sticks around and his MM fund does well and continues growing aggressively.
Just for the sake of being intellectually honest, you’re comparing fairly unremarkable pedestrian career outcomes vs. a very successful PE career.
I’d argue the real comparison would be lifetime earnings in those other career tracks where a comparable level of out-performance is achieved, e.g., becoming a group head at GS. The head of Sponsors or LevFin crushing it at GS probably makes $5-7mm a year, if you get that seat at 42, across next 15 years you’re getting $75-100mm.
Similarly, if you’re a plastic surgeon with a very successful practice, you’re making more than $400k a year.
Great suggestions but I think you're missing the point. The main purpose of the forecast was not to compare career outcomes but merely to look at total comp for a successful MM PE professional and whether its realistic to assume over $50 million can be accumulated before 50. Sure there are a lot of moving parts so to account for the variability of returns, I added the scenarios.
Estimations for carry at a senior partner level are relatively conservative at 2.5%.
If you are that level at a 3b fund, you probably are closer to a larger percent of the carry pool at that point. Can be as high as 10% of total pool assuming you are in top 3 professionals on seniority.
Even places where there are founders who own a significant portion of the pool, senior partners still get closer to 5%.
Source: Used to work in FoFs so we got carry distributions for all funds we invested in.
Fun theoritical exercise, but to answer your question "is it true", well your forecast has some pretty significant growth assumptions that are highly unlikely to be as linear as you've indicated.
Some things to consider:
i) $30MM is a lower middle-market fund and there is a significant difference from going to $30MM to heck even $350MM/$500MM. Then to go to $1/$1.75M then $3B are massive changes to investment and fund approach. Auction processes get more competitive, thesis in certain industry are no longer applicable given the equity check you are trying to deploy, "proprietery" deals are less and less likely, etc. Furthermore, the partners of the frim have to want to make these jumps in fund size and have the confidence they can raise that much with LPs they want. If you adjust your calculator to keep the fund sizes within the same category, you'll see the partners are probably not incentivized too much to take on new execution risk
ii) I would not make bonus a function of non-carry profit at any position below partner. Target a fixed $ amount or % of base. It just functionally won't work like that those levels
iii) You need to make your carry assumptions dynamic based on AUM/# of funds. As you grow, you'll need more head-count, and your carry points will change. I would also consider that your current founders likely have significnatly more carry points than non-founding partners. This is why you see people leave and start their own firms, economics can make a ton more sense
iv) I think the 3 year VP to partner is aggresive. Maybe my interpertation of your title of "Partner" differs, but I think you need to extend the time someones is pre-partner
v) Not that this maters, but your cary is going to be based off gross-returns
Once you start making those assumptions, you'll see it isn't as much as you think. As you look at your model, you'll see a high % of comp come from base and bonus, as opposed to cary. This is going to be true for your earlier years, but in the later years for lower to middle/middle-market, your weighting should shift significantly (this is also a function of your assumed base compensation and bonus). I can't tell you exactly what it is, just an observation.
I would highly consider taxes as well and the treatment of salary/bonus and cary, it's a big difference
this is some next level mental masturbation
maybe if you were working you'd make it to the realistic case (factor in 5% chance of dying, 35% chance you won't climb beyond assoc in PE and drop out and do corp dev)
dunno why i rethought about this thread, but i actually know someone who has achieved the $50M earnings b4 50 milestone. only had the chance to talk to him on phone once but this was kinda the path that the person took
Big7 Law -> IB -> MD in IB at major bank at like 34ish -> got recruited as partner at MM PE firm late 30s -> senior partner and significant carry in fund early 40s. Fund made like 35% IRR and he been cashing like crazy.
The math on your projections way too linear, he went from like making 1m a year to like 30m in 2-3 year period.. as soon as the portcos started exiting and he started getting some of the carry payouts. This is mostly due to multiple exits at 3x+ in a very short period of time.
this has to be a joke right?
fixed.
This is gonna be so wrong in a few years. The way tax convos are going after covid, cap gains is coming next. You're 50 mil is def not tax adjusted for income >1 mil which i can almost gauruntee you won't be at 20-25% as it is now.
Havent looked at his thing but it seemed he is talking pre tax
These conversations go two ways
There is probably anywhere from 20-25 guys at my firm who have cleared 50m by the age of 50 (most are actually still in their 40s). Large fund manager that was found late 1990s / early 2000s.
That being said, there is a very low percent chance that the above average guys in the next generation (guys / gals in their mid to late 30s) will get there due to the top being so young so not alot of economics to be shared.
Probably worth the growth of PE funds since those people starting working. Even the big names were not founded that long ago meaning if you joined a firm in ~2000...you were around for a lot of the company's growth which always = $$$.
Some of the assumptions here are insane. $760k cash comp as a first year VP? That is nuts. I worked at a MF PE fund out on the West coast and total first year VP cash comp was $400k. That excludes carry which would be 20-30bps.. your assumption on the cash comp are beyond ridiculous lol.
This is a report done on PE compensation based on a survey from 2019. Total VP cash comp across funds ranging from $10-$20bn came out at an avg of $518k... And also, once you become Partner at one of these funds, your salary becomes significantly lower (that's how it was at the fund I worked at).
BTW - 20-30bps at my fund as a first year VP was far greater than at other MFs.
In fairness, sounds like they likely haircut your cash comp to an extent given the outsized carry allocation. Cash comp for second / third year associates can get close to $400k from what I understand
Op has generated a good discussion so I applaud his efforts here
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