Successful Senior PE Guy: Net Worth
Saw a thread under the IB forum, and thought it'd be interesting to put a PE twist on it--
Let's say by the grace of god, not only did you stick around long enough to make partner, but you also had the tenacity and grit to grind the early partner years out and not get fired. You've now had 7 - 10 years of steady deal flow under your belt. The last 5 years have ramped quite considerably, and you find yourself putting in increasingly less effort / hours but, every year, you're doing the most business you've ever done.
You're not Steve Schwarzman or Leon Black, you're a successful private equity investor. How much are you worth today? How much could you be worth when all is said and done?
Credit to iggs99988 for the idea.
Around $20mm nw at that point. Could become a billionaire if decide to continue, but likely take the foot off the gas pedal I'd imagine.
You can do this math very easily.
In a spreadsheet have rows showing Year, Age, Title, Base+Bonus.
Start at year 2005, 24 years old, title Associate, Base+Bonus = $300k (not what '05 comp was, but lets just to illustrate on 2020 dollars)
Have 2 years of Associate, step up comp by $50k per year
Have 2 years in MBA, comp –$125k per year
1st Post-MBA year Sr. Associate, Comp $500k
4 years as VP, 4 years as Principal, 4 years as Partner/MD; every year step-up comp $50k as VP, $75k as Principal, $100k as MD/Partner
Next layer in fundraises and carry allocations. Take Blackstone or KKR financial supplement in their earnings reports to layer in the PE fund raises.
Use Heidrick and Struggles PE comp report that is floating around all over the place to allocate carry in each fund based on the reference carry allocation for whatever your strawman's title is in the year the fund was raised. Use the actual reported MOIC figure per fund (probably in the ~1.5x MOIC zip code) to determine the carry pool (Fund Size x (MOIC - 1) x 20%) and then apply your allocated carry % to that fund carry pool to determine the payout. If any given fund is low returning, it may be below the hurdle, but lets keep it simple.
That should frame the cash comp (Base+Bonus) and the carry component. I'd amortize a fund's carry across 5-7 years, just to smooth it out. You'll get an appreciation for how successive carry allocations stack and scale over time and how the blended "total comp" scales over time. I'd assume you live off your base and bonus and carry payout is your "net worth".
The $20mm net worth by the time you make partner and becoming a billionaire by retirement if you "don't take your foot off the gas" is nonsense. No one is making $1bn in this industry anymore, maybe a handful of people with complete outlier paths. The idea that you make $20mm in the first 20 years of your career, and another $980mm in the last 15 is ridiculous. I've heard megafund partners pitch partner track recruits that they can expect to have lifetime earnings of $75-100mm, and conventional wisdom is that this is a very aggressive marketing since (1) your longevity is by no means a given; (2) the absolute dollar value itself includes a fair amount of marketing spin/inflation, and is backward looking, meanwhile future of industry reflects lower comp, fee compression, and returns compression.
This is a very loose strawman framework; the dispersion around this outcome is quite broad.
Thx for the response. Crunched the numbers and a final net worth for a partner running funds between $5bn and $7bn came in right around $70mm assuming around half of net income is reinvested annually at 8% from ages 24-49.
@marcus_halberstram
sounds like you’ve done the calc before - what do you get?
A billionaire? What kind of JT Marlin bullshit are you peddling to these kids lol
While I was in MM PE, a lot of Partners were "rumored" to have ~$50MM retirement hurdles. Founders obviously were already worth much, much more.
Basically the same at my MM fund. Wanted to confirm that this was more common, and now I know
Haha I love how people on here think that by staying in PE you can make an easy billion.
First of all, most people don't make it up to Partner at the big funds where the carry $$ can be big. It's just too crowded at the top. As a Principal at a decently sized shop, you might be able to pull a few million a year, but there's taxes and that money can be variable depending on the carry.
Most folks end up leaving and going to smaller shops where the comp is lower and there's theoretically more upside, but at a young, relatively small shop, it will also take a lot of time, luck, and skill to make big money.
The "easiest" way to make a ton of money is to run your own fund and grow it enough to where you manage a few billion in AUM. Depending on how good of an investor you are, determines how much money you can make. If/when you make a few hundred million on a deal or a fund, you're keeping a significant majority of that. The VPs/Principals are getting crumbs compared to what you can command. That's how the big money is ultimately made.
Same goes for anything, you really only start making big money if you're the owner of something.
How much of the carry pool can you expect to command if you are (1) key founder of a new fund or (2) you and your partner are equal partners in founding a fund?
(1) 70%?
(2) 70% split between the two of you?
Short answer is as much as you want, but a ballpark of around ~70% is probably fair. All comes down to how generous the partner is and who they surround themselves with. Also depends on size of fund and how you have to incentivize employees. If you're a small fund and thus small AUM, you might have to give more carry away to offset for lower comp. If you go in with a group of senior folks, that's also going to lower the carry. If you care about keeping people happy and promoting from within, that also eats up carry. I generally think that ballpark carry for VPs is 1% or so, assume associates get nothing and maybe SAs get half of that. Principals maybe 2-3% and junior partners ~5%+. Again, these are super ballpark figures, you can go poke around the H&S comp report if you want to get more certainty, but it depends so much on fund size I would get too caught up in that. So think of a hypothetical 20 person investment shop, a few partners, a few principles, some VPs, and then the more junior folks. You could keep a lionshare of the carry on pretty significant dollars if you did well. Again...all much easier said than done.
8.5.2If someone's worked in the PE industry and survived for 20+ years, I'd say $50mn nw easily. One of my close friend's dad is a senior partner at a FoF (yes fund of funds) that was founded in 2001 and that manages about $11bn today. I'm not sure how much he's worth but he donated $100mn to his alma mater few years back, and his family only fly on private jet. I bet a senior partner at a "buyout fund" would do much better.
Not much to add on the subject, but just note that one's "net worth" can be derived from a variety of factors: inheritance, performance of PA, house appreciation, etc. If a current senior partner has been in PE for 30+ years (meaning they joined wall street in the 1970s-80s when wall street used to be much more of an old boys club), their parents probably were wealthy and left a sizable inheritance. Their PA compounded through one of the biggest bull markets in history. Assuming they bought an NYC townhouse in the 1970s/1980s, it could have appreciated 10x. Etc. Just because someone owns a $20mm townhouse or donates $X doesn't mean the funds were derived from their PE income
how do you find friends like this, seriously
50m easy money
Wouldn’t many of these super success folks that make partner, eventually break off, get seeded, and start their own shops?
Why would you do that if you're getting a nice chunk of carry on an established platform
Your carry will be like 75%+ if you open your own shop. Assuming you make partner that means you're probably a pretty good investor.
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