Am I getting hosed on PE associate comp?

Definitely feel like I am- making 150 all in (90 base / 60 bonus). Fund is Boston based, manages over 1.5 billion and is investing ~$500-600M fund. Over 10+ investment professionals (partner heavy) all in (double that to include admin). Typical route to get here is couple yrs in an i-banking program and most of the guys (incl. myself) came over from NYC so expected some level of "Boston discount" but this feels kind of ridiculous, just based on some of the numbers I've seen out there..Looking for any specific data points (I already have a spread of everything that's been published on WSO and can confidently say I'm right at the bottom of that list). Any Boston-based PE/ex PE guys- can you opine? Even if not Boston based, would love to hear people's thoughts. This is a very serious post so if there's anything that you'd like to share over PM while remaining anonymous, particularly as I intend to renegotiate, please do so. Unfortunately can't disclose any further at this stage without giving away the name of the fund..

 

There was a fund in Boston that just raised a ~$430MM, with ~$1B in AUM that I spoke with during the interview process and they had the exact same comp structure, maybe a little lower on base (maybe $80k salary).

When you get into the lower MM (think sub ~$500 in GP commitments), it's tough on compensation in a city like Boston, SF, or NYC. There are alot of expenses involved. I would try to constructively put together your thoughts on how you help the firm in ways that no one else does, (e.g. sourcing a deal, identifying cheaper sources of debt for portfolio companies, LP relationships, firm-wide materials, etc.).

You have to understand the leverage you have, otherwise if you're at a small place with no room for upward mobility, you may be viewed as a replaceable asset... and need to prove his/her value add.

Play the long game - give back, help out, mentor - just don't ever forget where you came from. #Bootstrapped
 

I would hesitate to try and negotiate higher pay as an associate. You truly are a replaceable asset at this stage of your career, and I would worry about the bad signal this sends to the partners. In their minds (and I'm not saying this is right), you knew the comp when you signed, and if you didnt like it you should have gone somewhere else.

Its also been said many times before on this forum, your comp at the analyst/associate level is somewhat irrelevant, its the experience youre getting that matters.

 

Guys- thanks for all your responses. Maybe let me throw a little twist in here to help explain why this may still be abnormal. I learned for a fact recently that there is no pay or bonus raise scheduled for next year or the year after and this has been the case here historically i.e. a third year pre-MBA associate here made the same comp as I did. I get the "Boston discount" / lower MM nature etc., but from what I've seen, funds do actually raise comp y/y, even at the pre-MBA level and even if its just a little, it gives you a little something to work towards. That's more the reason for frustration to be quite candid, rather than the fact that I'm starting off at the number I did.

Another point- although this is a role out of two years in IBD, I actually did come here with private equity experience at a different fund, so the ability to have "PE" on my resume now doesn't really change a lot of things for me (the rationale for making the move was a little out of my control and I knew walking in I was taking a bit of a haircut but didn't have much of a choice due to a unique set of circumstances).

Any other perspectives would be very helpful. Thanks again to all of you who responded.

 

Smaller funds often don't have HR departments that clearly outline your comp expectations for year 1 and year 2. Often you will just be told year 1. I know a couple friends in PE who are second year pre-MBA associates and their base did not increase from year 1 to year 2. That said they are expecting a higher bonus to make up the difference, however it's not like that increase in bonus has been communicated to them (it's more their hope than anything else).

This is a big shock for people who come from a BB investment bank with very organized HR departments to a small PE fund. You will probably be making less than a third year banking analyst, but hopefully your quality of life will be much better. Focus on that intead of thinking you're getting the short end of the stick.

 

My roomie had an offer from a Boston firm that approximates yours (similar size fund, same base/bonus). The only difference was that his role had a sourcing aspect to it, so there was some sort of additional bonus calc if you sourced and closed something (I forget how much).

It does seem weird that there is no raise - are you absolutely sure this is the case? When was the fund raised? The only way I could see no raises being justified is in a firm that's winding down its funds (zombies), no hope of getting incentive payments, no longer investing, etc.

 

Thanks for your perspective as well. I don't have a sourcing element to my role, its really something we're "supposed t be focused on anyway" when we're not working deals but luckily I don't have to source as part of my job.

As far as no raise, yes that's confirmed. Its the same number across all years until you leave or get promoted. That's the rub.

 

Perhaps you should ask if you can help source deals instead of shying away from it. Anyone can put together an Excel model, but most can't source a deal. If you can get involved in sourcing deals, ask for a commission or a larger bonus.

 

Would agree with the above - your comp is definitely on the low end of the spectrum and not having automatic raises in place blows, but I don't think there is much you can do about it. Maybe I am too risk-averse to renegotiate my salary but I do not think it is worth the potential stink it might put on you in the office to go in and ask for a raise just to get an extra $25k before you get your MBA.

For reference I am at a non-NYC middle market PE fund that is bigger than yours but in the same ballpark and pull in just under $200k year 1. We do have meaningful step-ups each year though. I have a friend who is at a non-NYC MMPE fund that is smaller than yours who is actually starting out at $140k (I think) so while your number is low it does not seem WAY below market.

 

I think hosed would be a strong word to use, but it is on the lower side and can't blame you for being a little bummed. Based on my own experience and my friends in the industry, I would expect your comp to be closer to $200k all-in and I've seen as high as $250k in NYC. However, I think the time and place to negotiate comp and set future expectation would be around the time of the next fund raise/closing and after you've established yourself more within the organization.

 

Do you have any insight into your funds' economics? For your size fund there should be enough to pay you more than that assuming a 1.5%-2.0% fee. Do the partners own 100% of the GP or did another fund or LP help seed your firm and own a big piece of the pie?

I would say as a general matter, your comp is under market. If you knew this going in, then it's hard for you to re-negotiate before your first bonus / anniversary. I disagree with whoever said that associates are replaceable. Bad associates are very replaceable; good and great associates are hard to come by. If you knock it out of the park and do well they will find a way to keep you happy and you should always leverage your strengths when you can and it is appropriate.

 

Not sure what you're referencing when you say "Boston discount." PE funds in NYC charge the same exact fees as PE funds in Boston, Chicago, San Francisco, or even Texas / Iowa / Kansas. The amount of money to cover expenses should be the exact same for a $1.0bn fund in NYC as a $1.0bn fund in Boston. Only difference is office space and other overhead costs should be LOWER in Boston, which implies more money to go towards compensation in Boston. In the world of PE, I would expect a premium salary in lower cost of living areas rather than a discount. We're not talking about multi-national corporations with 10,000 employees here.

As for your comp, it is low given the fund size. But if the firm is Partner heavy that could explain where most of the cash is going. Annual step-ups are definitely customary in PE though don't expect to get rich off them. The real increases come with promotions.

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Best Response

^ I think you may be a bit further removed from this but as a recent Boston PE senior associate, the Boston discount is very real and refers to the lower compensation paid to most junior associates (2 years banking experience). The main reason is not due to fund economics but rather the culture differences between Boston and NYC / other Tier 1 cities.

The upside is that Boston associates in general work less hours than their NYC/Chicago/LA counterparts and consequently, Boston funds have no reason to pay high compensation for sweat-shop hours which is the usual trade made to associates.

The discount also occurs due to a lot of the popular strategies & fund models which are concentrated in Boston, such as the cold-call growth equity guys and the VC-early stage hybrids like Battery and even HIG growth. Sure, the fund may be standard 2-20 or even 2.5% and 25% but when you have an army of 20 associates sourcing deals vs. a traditional PE model employing only 5 associates, then the discount occurs.

With that said, the OP's comp is very low. Starting associate salary for a mid market fund in Boston in my experience starts at 200k all-in and increases every year.

 
ST Monkey:

grass is always greener on the other side buddy. Would you blame your girl for not being hot enough whenever you see a chick that's hotter? You approached and courted her from the get go, not like my buddy that was forced to marry a chick his family arranged for his ass (she was hot by the way).

true... but check this scenario...

if you saved yourself for marriage... picked a nice chick (good credit, nice teeth, round butt) and yall get married... then it when it came to give blowjobs, she was all "nah... i dont believe in that"...

Three months later, you're sitting around with the fellas and they're speaking to how their wives gobble dick like it's going out of style...

It kinda makes you wonder "hey.. what am i really doing here"

 

Wow thanks for all the perspective guys, much appreciated. I think I've been able to confirm here that (i) the number is definitely low (whether its a big discount or not depends); (ii) not having auto step-ups (hell even if its $5K) sucks no matter what you say (if they really couldn't squeeze out 5k or more per year, they could have structured the comp to be even lower the first year, 150 the second and 155 or something like that the 3rd year); (iii) whether there really should be a "Boston Discount" or not, it does exist no matter the economics etc. and the explanation is somewhat along the lines of what Sanity Check discussed above - whether you take the #s on WSO's database with a grain of salt or as gospel and compare what people have listed as comp in nyc vs Boston funds, NYC wins; (iv) there's no point whining about an extra $25k here and there and that wasn't my intention really, my post was more to get a confirmation of the fact that this is legitimately low; (v) sourcing deals is a way to go up but honestly its easier said than done - i know the sky's the limit etc. but its a herculean task- I've already sourced a couple legitimate ones here that got dinged because of partner clashes (not really my fault) but that said, yes, that would definitely create room for negotiating a higher comp.

Hey to the extent anyone else has any color, fire away, I think we could all benefit from additional data points here since its all anonymous - any VPs/ex VPs out there who could opine further?

 

granted these datapoints are old, but i worked at 2 funds with similar AUM:

Boston firm #1 in 2005: $70k base, fired after 6 months with no bonus

NYC firm #2 from 2005-2008: $80k base first 2 years, $75k bonus first year, $80k 2nd year, $90k base 3rd year + $140k bonus (because I spoke up BEFORE they told me my # to point out the extra work I had taken on my 3rd year)....I was paid undermarket for ~3 years but didn't rock the boat until the 3rd year at the 2nd fund when I knew that if I didn't say something, I would probably get paid under market again.

Granted these are old datapoints, but I think the Boston discount is real (we see it in IB too). I don't think it's a good move politically to rock the boat much unless you have other options and/or can point to a lot of things that you have taken on...

For the 3rd year, I asked to speak with the partner before comp #s were announced and explained to him the deals i worked on that had closed, all the work I had done with portfolio companies and the work I had done with fundraising. he flat out asked me what I wanted and I said a #, and they gave me close to that #....but this was after I was comfortable with them and had proven myself. It also helped that I had already gotten into Wharton and knew I had little to lose as long as I was reasonable.

Hope that helps! Patrick

 

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