Does Job Hopping Max Comp in PE?
It seems to have become conventional wisdom that switching jobs every 2-3 years maximizes comp in most industries. My understanding is this is especially true in tech. Is this true for PE careers in the early to mid stages as well? Obviously the 2+2 path is very common and once you’re later in your career carried interest encourages you to stay put. But in between when you’re trying to get promoted from ASC to VP or VP to Principal / etc, does job hopping every couple years tend to be optimal?
No it's probably the total opposite. If you hop in the middle of your associate program, many firms may require you to do an extra year at least -- it's rare to jump to a promotion in PE whereas it's common in tech (e.g. 2-3 years at one shop as associate, then jumping to another shop at senior associate / VP level is not common). You will see a common theme that the youngest PE partners at most firms are those that have been there since they were associates.
Once you're in the senior levels, your carry allocations grow over time (which you could forfeit if you leave) further reducing incentives to hop around -- never mind the fact that the path to partner takes a lot of political capital over time and you'll always be at a disadvantage (all else held equal) to the rest of your class that's been at the firm longer.
Obviously going from LMM to Apollo PE will boost your earnings, but generally hopping around is not ideal unless there's a big difference in fund size. The best way to maximize earnings in PE is to join a firm that is raising larger and larger funds every few years, has great returns, and clear path upwards. You'll end up richer than the MF Partners in the long-term this way -- but easier said than done :)
This is all true — the corollary is that PE headcount thins at each promotion level, so if you don’t get the promotion at one firm, then you may be able to by switching firms if you are very marketable, or lateral and get promoted in a year if it isn’t happeningin your current shop.
This is often why you see stats like “switching jobs leads to higher comp” — correlation between the most marketable folks and job switching.
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