I was talking with a buddy of mine the other day (we're both at BBs, 2nd years) and we were talking about the PE vs. IB route, particularly comp at the senior levels. We know that seasoned MDs in our groups make in the mid-seven figure range per year on average, which admittedly, is more than I expected before I started (also worth noting that we both always thought one made way more in PE). We also know that the comp at EBs can be much higher than at BBs, and is more directly correlated to the revenue you bring in (20 - 30% of a fee, which isn't the way bonuses work at BBs, but regardless...)
So we contrasted that with what we expect a partner at a PE fund makes, which is speculation on our part, but we nonetheless came to the following conclusion:
- The top percent of PE partners (not sure what this would be, 1-5% maybe? As high as 10%?) definitely crush it above and beyond what an MD at any bank can possibly make; we're talking tens of millions and above. We assumed this group is largely confined to the megafunds or when a partner has some huge returns with big carry and has a monster year
- But, for the 90th percentile and below, we were betting that the average MD at a BB/EB makes more than the average PE partner
Then we moved on to a few other considerations:
- how few megafunds there are and the small number of partners per firm vs. The large number of MDs across the BBs and EBs
- the difficulty of making partner in PE vs making MD... my understanding is that it's MUCH harder to make partner, as there is a limited pool of capital that can't sustain a high number of partners and the only times new spaces open up are when a firm raises a significantly larger fund or when existing partners leave/retire, vs in banking it's a pretty structured timeline and progression, with more room for MDs at the top, especially if you're bringing in business for the firm
- The entire b school situation; generally having to leave PE and then battle to return to PE after b school, vs in banking there's no need to leave, and again the progression is very structured in position and timing
So bottom line, we concluded that while the ceiling in PE is significantly higher than in banking, only the very top of the industry achieve that level, and the average BB/EB MD probably makes more than the average PE partner. On top of that it's generally an easier road to MD than to partner. So at the end of the day, if maximizing earnings is your top goal (for argument's sake), you should probably stay in banking.
What are you guys' thoughts on this? Agree/disagree? Are we way off base? If you disagree, where are we wrong in our assumptions or analysis?
most senior people in my domain make well in excess of the average MD and probably more in the range of the PE estimates you guys are talking about (e.g. top partners) and are much younger then BB MDs (e.g. early 30's) so in any regards its much better then IB (also quite a few make it there so its not like 1%). If you make money you can move up pretty quickly and get paid pretty well.
Appreciate the insight. I take it your domain is the HF world? (Judging by your industry tag) plus, don't think many PE guys are making partner by their early 30s. I don't have the HF mindset, but props to you and I hope you're one of those top guys sooner rather than later
My two cents, which might be way off:
I think you are underestimating how difficult it is to get to MD in banking. It's crowded (a little less than PE, but still crowded), meaning there are a ton of directors that are stuck as execution guys until the guy above them retires and shares the relationship with them.
I also don't know what you mean by "the average MD", there isn't really a typical MD because it's so variable. Once you're at that level, you're responsible for bringing in business and generating revenue. In PE you might not realize the return for some length of time, but in banking the number and size of deals you bring in is noted every year, and if you don't bring in a sufficient amount you'll likely get the boot.
People massively underestimate the time to monetise your carry in PE
These posts are always ridiculously flawed in their construct. OP is fundamentally missing the fact that people's skillsets and interests are geared to different career paths. The ideal career is the one you don't hate, that suits you well, and where you don't burn out after only 5 years.
You will never make money in the long run if you hate what you do, especially in such an intense and high stress career. Again, OP's construct is flawed. And I think I would know better than you as I've done all of HF/IB/PE over the past 5 years.
Try thinking harder.
yes making partner in PE (at least at the top funds) is arguably very difficult these days. Most of those guys are a bit older in any case.
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