Private Equity Pay vs. Investment Banking Salary
You often hear on here that there is more money to be made in Private Equity over Invesment Banking. I was looking at the 2016 employment report from London Business School. Looking at the mean salary, it is higher in IB than in PE. Also the "other guarenteed compensation" is much higher for IB.
I was under the impression that salaries were much higher in PE?
Is that only true if you move to a top mega fund?
Is there really a lot more money in PE? Or is it just a case of the average salaries being higher in PE but if you are performing well in IB, you can still earn higher than the average performers in PE?
Salary and Bonus Comparison between PE and IBD
It is too simple to say that private equity compensation is higher than investment banking. In many cases, working in PE at the associate level after first working in banking will likely result in somewhat better pay but it depends a great deal on your firm, your contract, your carry agreements, and the bonuses that you would have received at an investment bank. User @Draper_LDN" shared more on this in a detailed post below.
On base salary, you would generally be earning more as an Associate in PE when you join from a mid-senior analyst level but as you become mid-senior associate in IBD you tend to earn a higher base salary. So if you join as an Associate in PE from an Associate position in IBD you would take a hair cut in the base salary.The bonus element at PE firms tends to be less when comparing Associate PE to Associate IBD and a big part of the post-tax bonus will be used for deal carry payments (depending on Fund).
User @Draper_LDN" went on to explain the carry system:
The big payment in PE comes when you get a carry pay-out, which can take many years all depending on timing, fund structure, your employment contract terms etc. For example, for a newly raised fund it could take 5-7 years before you start seeing carry bonus payments, whilst you at IBD would be taking home an annual bonus. If you are at a good fund then you would probably earn quite a more over your entire career.With PE you are slightly more committed to the fund as you have to stay with the firm until the carry payments are being paid out. Assuming that you received cash bonus payments (e.g. EBs) you have more flexibility in your career moves. An MD in IBD could get an annual bonus of PS250-500k and with a PE you could easily pull PS1-5m in carry payments at the senior level...
Learn more about carry in the Wall Street Oasis Finance Dictionary.
Compensation Difference Between Private Equity and IBanking
The Wall Street Oasis Industry Reports offer details about private equity and investment banking compensation as shared by our users.
Read more about the industry with the 2018 Investment Banking Industry Report.
Read more about the industry with the 2018 Private Equity Industry Report.
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Depends on the level you are in IBD vs the entry at PE.
On base salary, you would generally be earning more as an Associate in PE when you join from a mid-senior analyst level but as you become mid-senior associate in IBD you tend to earn a higher base salary albeit minor. So if you join as an Associate in PE from an Associate position in IBD you would take a hair cut in the base salary.
The bonus element at PE firms tends to be less when comparing Associate PE to Associate IBD and a big part of the post-tax bonus will be used for deal carry payments (depending on Fund). The big payment in PE comes when you get a carry pay-out, which can takes many years all depending on timing, fund structure, your employment contract terms etc. For example, for a newly raised fund it could take 5-7 years before you start seeing carry bonus payments, whilst you at IBD would be taking home an annual bonus. If you are at a good fund then you would probably earn quite a more over your entire career. With PE you are slightly more committed to the fund as you have to stay with the firm until the carry payments are being paid out. Assuming that you received cash bonus payments (e.g. EBs) you have more flexibility in your career moves. An MD in IBD could get an annual bonus of £250-500k and with a PE you could easily pull £1-5m in carry payments at the senior level...
All in all - you will get rich either way. It all depends on what you like to do!
I don't think carry in PE will ever be meaningful for any associate. My fund has generous carry for junior people and I've only received a few checks of a few hundred bucks. Bonuses in PE at the associate level may be somewhat lower than banking bonuses, but the real advantage is that none of it is deferred / paid in stock. In PE 100% cash in the bank, net of taxes (this may be different for the few publicly traded shops?)
As you mentioned, carry can be very meaningful in the long-term, but that implies you are staying longer than 2+ years (which is the case at some shops nowadays but many, if not most, are still 2-and-out).
I'd like to ask, how much does a MD in IBD (say in an EB) earn all in before tax? On average? An average group and an average year.
Thanks!
At my firm there are MDs that make $1mm a year and MDs that make $20mm+ a year. I'd say median is in the $2.25mm a year range. Higher in the US, lower outside the US. Mean clearly higher.
I love how OP gets monkey shit just for asking a simple question lol some of you finance guys are very sensitive little pussies aren't you lmao