IB vs. PE in 2024+

Currently in a weird dilemma trying to figure out what career path I want to choose. I have an offer to a very good MF and currently work at a very good IB. I bought into the PE makes you way better off than IB hype and prestige but having really taken sometime to detach from the finance world and think internally I am having a hard time trying to figure out what I really want to do in finance.

I had the opportunity to speak candidly with a pretty senior partner at the fund I received an offer from (KKR/Apollo/BX/Warburg) and a separate conversation with my group head at my current IB.

My two biggest takeaways were the following:

  1. Compensation - I told both of them that I want to know more specifics about the trajectory of compensation if I were to have a full career at the shop or bank. The partner said the partners are making $1-3mm annually with a $15-50mm carry check every 7-10 years. The IB group head said that the top MDs/Group Heads/Head of IB are making $5-25mm annually. This comp trajectory actually favors IB quite a bit and brings me to my next point
  2. Title to Title comparison - One thing I think this forum fails to do is compare PE and IB titles correctly. An average MD at a good IB is not a fair comparison to a partner at a good PE fund. Partner is very difficult to make and oftentimes people are held at director or MD in PE and never hit partner. This dynamic is similar to IB, a lot of MDs in IB are held at MD and never make it to sector head, group head, or head of IB. That being said comparing a top PE Partner to an average MD would be like comparing first-string starters to second-string or practice squad players. Funds don’t have that many partners but have many more directors/executive directors/managing directors and in IB there are more MDs but a lot less sector heads/group heads/heads of IB

All in all it really seems like if you are gunning for the top it is pretty much a wash between IB and PE. Obviously you make more in IB at a junior level but when you compare the top to the top it seems somewhat equal. If you are the founder of a fund it is a different story but also that is a lot more risk. Even then though comparing Ken Moelis, Joseph Perella, Peter Weinberg, Frank Quattrone, Blair Effron, etc. to some of the PE founders of the world it seems pretty comparable still. Hedge funds are a different story and honestly a different game so not bringing those into the conversation but you also can make a lot of money here as a founder but it comes with material risk.

These are just my thoughts I’ve gathered from having some conversations with seniors and reading what is available data to make these comparisons. Don’t MS me, I am curious to know if I am thinking about this correctly.

 

Ah, the age-old debate of Investment Banking (IB) versus Private Equity (PE) - a classic conundrum that many finance aficionados find themselves tangled in. Based on the most helpful WSO content, let's peel back the layers of this financial banana and see if we can't make sense of it all.

  1. Compensation Trajectory:

    • In PE, particularly at a top-tier firm like KKR, Apollo, Blackstone (BX), or Warburg Pincus, the compensation trajectory indeed has its allure with partners potentially raking in $1-3 million annually, alongside a hefty $15-50 million carry check every 7-10 years. This carry component, a share of the profits generated by the fund, is what often dazzles those in finance.
    • On the flip side, the IB realm isn't short of its golden bananas either. Top MDs, Group Heads, or Heads of IB can see themselves earning between $5-25 million annually. This suggests that at the pinnacle of success, IB might just edge out PE in terms of raw compensation numbers.
  2. Title to Title Comparison:

    • The comparison between PE and IB often gets muddled because of the differing titles and the weight they carry. In PE, reaching Partner status is akin to finding a golden banana; it's rare and highly coveted. Many get stuck at the Director or MD level and never make the leap to Partner.
    • Conversely, in IB, while there are more MDs, climbing up to become a sector head, group head, or head of IB is equally challenging. Thus, comparing an average IB MD to a top PE Partner isn't exactly comparing apples to apples—or in our case, bananas to bananas.

Conclusion: Your musings are spot on. For those aiming for the top, the journey in both IB and PE can be equally rewarding and challenging. The initial years might see IB taking the lead in compensation, but as one climbs the ladder, the gap narrows, especially when considering the top echelons of both fields. The risk and reward in founding a fund or becoming a top dog in IB are monumental, but so are the challenges and the rarity of achieving such status.

Remember, the choice between IB and PE shouldn't just hinge on potential earnings or the prestige of titles. It's also about where your passion lies, the kind of work that excites you, and the lifestyle you envision for yourself. Whether it's closing deals and raising capital in IB or diving deep into investment theses and portfolio management in PE, both paths offer rich experiences and learning opportunities.

So, don't let the numbers and titles alone sway you. Consider what makes you tick, and where you see yourself making the biggest impact. After all, in the grand scheme of things, it's not just about the financial rewards, but also about finding fulfillment and joy in your work.

Sources: Private Equity Pay vs. Investment Banking Salary, Investment Banking to Private Equity - 6 Things You Should Know, Q&A: Investment Banking Associate, Investment Banking vs. Capital Markets - How different are they?

I'm an AI bot trained on the most helpful WSO content across 17+ years.
 

had the opportunity to speak candidly with a pretty senior partner at the fund I received an offer from (KKR/Apollo/BX/Warburg) and a separate conversation with my group head at my current IB.

My two biggest takeaways were the following:

  1. Compensation - I told both of them that I want to know more specifics about the trajectory of compensation if I were to have a full career at the shop or bank. The partner said the partners are making $1-3mm annually with a $15-50mm carry check every 7-10 years. The IB group head said that the top MDs/Group Heads/Head of IB are making $5-25mm annually.

I think you’ll have no trouble reaching $25 million annual comp if you continue writing erotic fiction of this caliber for gullible prospects in university finance clubs.

 
Funniest

My apologies for your inability to ask hard questions to people in higher positions or to simply use google. If you have a problem with these suggested ranges I suggest you grow a pair and talk to people who can provide real answers or simply google “Heidrick & Struggles Private Equity Compensation Report” for some data. You could also look at some executive compensation sections of company filings to see what heads of IB and even some group heads make at certain banks. You’re clearly not educated enough on this subject to make a significant comment so maybe don’t next time. Too many retards in this world, please help us stop the spread. You can send my $25mm comp here: https://mn.gov/mnddc/parallels2/pdf/60s/63/63-AHG-NARC.pdf

Thx

 

I think you answered your own question - outside of the absolute top performers (owner of PE firm / that MS banker that almost did a trillion in transactions in his career), the wealth you can generate in either is pretty comparable and it comes down to what you prefer.

I will say though that in general I believe banking is sort of a commoditized industry and with that comes fee compression. With PE, it’s intellectually very hard to win, but there will always be value opportunities with which you can generate alpha.

 
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musitall

I think you answered your own question - outside of the absolute top performers (owner of PE firm / that MS banker that almost did a trillion in transactions in his career), the wealth you can generate in either is pretty comparable and it comes down to what you prefer.

I will say though that in general I believe banking is sort of a commoditized industry and with that comes fee compression. With PE, it’s intellectually very hard to win, but there will always be value opportunities with which you can generate alpha.

I'm not sure - PE has also become highly commmoditized - with every deal opportunity above a certain size at least considered by 10+ funds who are really not at all differentiated. To win an auction you need to have a differentiated thesis to why you can pay the most, which increases risk / can kill returns in the long run, because if 5 other highly credible funds don't see a reason to pay more than X times and you do it seems risky at best. 

Of course you can still make great returns and do lots of interesting things operationally / financially. You can also have the odd very well sourced deal, but these are becoming increasingly rare, and funds are all putting a huge emphasis on sourcing so those opportunities are scarce. 

So yes - there are always value opportunities, but when you have 100+ funds with $5bn AUM or more it is reasonable to expect those opportunities to be bid to or above a price where you can generate alpha to the level required for your hurdle / carry.  

To note - this week I read an old parliamentary hearing from 2007 where David Blitzer mentions that 50% of PE funds have no carry at the end of them. Now this is old but comes from a time where there was fewer competition for assets and arguably a better macro environment overall for investing (considering the 15 years prior to '07). 

 

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