Why is PE associate pay still much lower than banking pay?
I know that this has been covered before but it has been almost 2 years since the pay bumps across the industry ended and PE associate pay for most places is much lower than banks.
I don’t even think the carry argument is even valid since most people won’t even get to that point.
I don’t want to sound sour. I find a career in PE more interesting than IB but the associate pay does not make sense.
While the roles have the same name, and PE associates generally have responsibility, the banking associate is historically a post-MBA role while the PE associate is a pre-MBA role. The better comparison is MBA Associate to PE VP where the compensation is usually slightly higher for the PE VP.
This is from a PE associate who feels under-compensated but I don’t think this is the perfect comparison to justify increases in comp (unless lots of PE associates start going back to banking for higher pay).
I see what you're saying, but I don't really get this logic. Wouldn't this imply PE associates and IB analysts are comparable because they're both pre-MBA, which doesn't make sense as one comes sequentially after? I would think IB associate to PE associate is still the right comparison given they are post-banking analyst roles.
I don’t think that an IB associate is a post-analyst role. There is the A2A exception which is growing but the vast majority of bankers start their banking careers after an MBA (without pre-MBA banking experience).
I am a post-MBA PE associate and I make significantly more than my post-MBA banking associates when you consider my carry. '
My annual cash comp is about 10% lower.
The way I think about it is I’m much happier and engaged in PE than IB, and WLB is better (at least for me). I’m willing to take a bit less for that extra happiness. I think banks realize this and are forced to cough up a bit more to keep things copacetic and reduce turnover.
Is that the case tho? I see a lot of anecdotes of PE being as bad / worse than IB. Especially with the level of responsibility.
I’ve definitely heard of those cases too. It’s highly dependent on firm/group. I feel like if you’re at a MF you’re probably getting worked, but getting paid competitively/more than IB. I’m at a SWF where pay is at a discount to a MF, but still great (imo) and job security and my WLB are decent. I’ve had a higher up directly tell me this is the case - pay is less than market for these reasons. Again, this is my person preference, as I prefer that over the former case where I wouldn’t have a life...I did my time in IB and never look back. whatever floats your boat.
Simple way to think about it is higher stress vs. degree the type of work is interesting to you. i.e., you like making investment decisions with lasting impact vs. short term transaction execution. If the work is more interesting to you, the incremental stress can be worth it. If it isn't more interesting to you, then it isn't.
How many banking ASOs have been laid off in the last two years, and then how many PE ASOs have been laid off in the same time frame...?
Banking can be a bit "boom and bust" as it is heavily dependent on market conditions and constantly doing deals. PE is a very long investment cycle. Also carry makes PE comp significantly higher than IB over the long term, so there's not a ton of pressure to raise the cash portion even if your day 1 comp is lower than IB.
But what are the odds of getting that promotion in PE? Seems to be much lower than in banking for associate > VP. Yes I do see less layoffs in PE, but many people are out regardless after two years.
Fair, but it's not like you go work at McDonald's. Most people go a bit down market and still land in PE.
Also think VP promotion rates have come way up in the last few years as more funds go career-track and lean away from pushing people out or to MBA. Obviously promotion is not a given like IB, but ASOs are not kicked out as much as they used to be
Is it lower? What is banking assoc comp?
Most PE funds pay 300+ for first years
Just saw that PWP and some of the other boutiques pay 185 base for Associate 1. That BBs are probably a bit lower but seems like to be still higher than PE.
A lot of bulges are still at 150 base
I don't even think this is true. Smooth banking bonuses over the past three years and it's probably about the same, with higher variance on bonus in IB. You should be comparing BB/EB with top MM / UMM / MF, and in that case it's probably pretty comparable and maybe even a slight edge to PE. If you're comparing with a run of the mill MM PE firm, then yeah
With where bonuses are this year in banking most PE roles now pay on par if not more than banking. Banking pay in 2021 (and some extent 2022) was the highest it had ever been and should not be viewed as sustainable levels.
This is spot on
Go check the William Blair bonus thread and get back to me
Check the IB bonus threads this year and rethink your question
Banking associates don’t make more than PE associates if you’re looking at top places… not sure where you’re getting your information from. Over the course of 10 years, the maximum annual compensation will be higher in IB due to boosted market conditions, but the average annual comp is very similar if not slightly better in PE. And then you factor in job security, and it becomes obvious why so many people try to get to MF PE
Job security is higher in PE? With promotions being so competitive I thought it’d be less in PE. Yeah you don’t have layoffs like banks but getting pushed out is still getting laid off essentially.
Getting pushed out with a year or year and a half notice provides substantially more job security than getting canned with one month’s notice like in IB. PE associates who don’t get the VP promotion almost never have large gaps between their associate positions and their next job because they have significant notice. Not at all the same for banking
There is substantial misinformation / cope on this thread. By and large, boutique banks (CVP, Qatalyst, PWP, MOE etc.) pay way more at the Associate level than even the top MFs (esp. when you factor in the A2A retention bonuses that all of these places offer). I have direct datapoints that show that the delta between Associate 1 comp. is $100K+; if you're at a place like CVP or Qatalyst that difference is quite literally $300K+ (when factoring in aforementioned retention bonuses).
I agree with the OP that compensation in PE at the associate level doesn't make sense right now. Making ~$330K doing tasks that are essentially equivalent to what a 1st-year analyst at an EB would do (plus some "thematic" research + conducting expert calls) does not really feel like a reasonable trade-off. The work is also not that more intellectually stimulating; every IC memo / deck has roughly the same investment pros / cons, and ultimately you're pushing whatever deal your MD wants (no matter how poor you personally think the opp. is).
I don't think PE (generally) is an attractive space to work in anymore in 2024. Oversaturation in the space is driving prices up and returns down, and very few funds are 1) reliably growing so that they can add more heads to the carry pool, 2) have a good enough "culture" / WLB to the point where most people would find the 10+-year "golden handcuff" commitment worth it.
What is a 1Y associate at those EB's making? I can't imagine a 1Y associate in banking is pulling $475-500k. Factor in carry 3 years later, there's no way a banking VP is making $2mm per year ($5mm carry x 3x over 5 years = $10mm carry...also taxed at 20% vs. 40%)....and that's before including $600-900k cash you'd make as PE VP during those years, too. I love when people defend staying in banking...there is maybe a 1 or 2 off unique case, but 99% of the time you're going to be better off in private equity...deploying money that works for you and owning part of it will always beat having to go earn your fees each year.
I do get what you’re saying but I’m really solely talking about the associate years. Obviously carry can and will blow the numbers out of the water but 1) carry isn’t guaranteed 2) promotion seems less guaranteed than banking. This is coming from someone trying to break into PE. I get these opportunities all the time through HHs with PE associate pay being $125 - $150 but with many banks either being on the top range of that or even higher like the boutiques.
I don't think your understanding of carry math + distribution timelines is fully there. For many funds you are looking at ~10 years of vesting for any of this "carry" money to hit your bank account. Not to mention the fact that most funds are not 3x their investments over 5 years. The illustrative math you cited in your comment is exactly what seniors sell to up-and-coming associates to try and get them to stay. You often also have to commit personal capital as co-invest into the GP pool to have skin-in-the-game, which further exacerbates the golden handcuffs.
In response to another comment you have on this chain: there are 100% MFs that pay less than $350K / year for first-years, and are closer to $320K. In fact, why don't you list the MFs that "pay first years $400K"? To your question on 1Y associate at EBs - that's exactly how much some of them make including the retention bonuses (which is the type of candidate who would end up at a MF anyway). Look at the boutique compensation threads from yesterday and today. Associates at some of the firms listed in the original comment clear $700K in a good year (this is a statement of fact).
The delta is not 300k averaged over five or ten years. You are citing the most outlying numbers available in the best possible economic environment. No reason to lie to people on this forum; no one’s judging you for staying in IB big guy
I replied to another poster's comment above. I totally understand where this thought is coming from. The reality is, most associates who go into PE are not sticking around for 5+ years. Most associates do 2 years, burn out of finance completely, and take some corporate strategy / start-up role that pays them $200K / year.
Too many people go into PE with the wrong idea of carry / long-term sustainability. The OP's original topic was about compensation differences at the associate level between IB and PE, but I think the broader debate is how attractive PE is intrinsically as a job now in 2024. Compensation is just one small factor.
For some historical perspective, the comp gap absolutely has narrowed over the past 20 years. Going from AN2 to first year UMM Associate was a 100% jump in base and a 2x jump in total comp, and second year Associate total comp was 50% higher than the first year. I did some inflation adjusted math and this would equate to total comp for a current UMM/MF being 30%+ higher than current levels. Setting aside the volatility argument (go look at bonus thread in the IB forum for some real time examples), the best funds would pay better than the banks even in a good year vs. now where comp at some funds is at parity or even below the banks in a good year.
As to why the PE comp premium has gone away, I think there are many factor on both the banking and PE side:
1. On the banking side, A2A promotion is much more common now. Some banks have increased Associate comp because I think after 3-4 years with the banks some Associates really add a ton of value and banks don’t want to lose them. 20 years ago most Associates were MBA hires and often had no prior IB experience.
2. EB model has flourished in the last 20 years, and I am not surprised they lead on comp as it is more akin to the legacy partnership model that used to dominate PE.
3. PE Associate classes used to be much smaller (even accounting for AUM growth) with deal teams being more lean. Many firms continue to add layers of people and deal teams and career progression are starting to look more like banking at some firms.
4. Increasing prevalence of non-employee shareholders in private equity. Many firms are either public or have sold stakes to third parties like Dyal. The requirements of these shareholders reduce the pool of fees available to employees.
5. Recruiting timeline has changed. Top funds used to hire after a full performance cycle and would compete to get upper bucket ranked analysts. Now recruiting happens so early that I think some funds view the hires as higher risk, which I think is partially why class sizes are larger to account for some variance.
All excellent points. Thanks for your insight
OP here.
It’s interesting with what everybody has said here. All of the points make sense but I still think the associate pay for PE is still a bit short. This is not pre-Covid anymore. All banks have bumped pay substantially while many PE funds only increased incrementally. I do understand that MFs and UMM pay well but the seats are pretty limited. From what I understand, places like Apollo and KKR probably have classes smaller than A&A classes at some boutiques and definitely at all all the BBs.
This is coming from someone breaking into PE. Too many MM PE funds have their associate pay sub 150. The other thing to consider is that WLB might be better but things might change once deal flow picks up. You will probably start pulling IB hours while getting paid less than many banks.
I do understand the long term pay can be much higher than IB, but I am not sure if probably as high as people think.
On the associate level, I do truly think that there should be discussions about an increase pay for the industry. This is not mid 2000s anymore.
It’s so simple. It’s just supply / demand. You think comp should go up but you’re still trying to break in right? The firm just needs to pay enough to continue to attract the talent and it seems to be working.
You could say the same thing about banking. Even though many people were going to tech instead of IB, there are still thousands lined up to take these roles and the pay was still increased. Across all levels.
On this very thread you have a mid/senior-level PE person claiming that they have multiple MILLION dollars at work, while completely brushing over OP’s original claim that PE comp. at the associate level is low. There’s no reason why successful PE firms should be paying their associates such low figures given the fact that they clearly can afford it. Hopefully this is indicative to all aspiring analysts that the grass truly is not greener on the other side, and that - chances are - your associate experience in PE will not be better than if you had just progressed at your current bank. If you’re at a good IB group with a good culture, seriously reconsider what you’re getting into with the risk of trying PE in today’s environment.
I still don't understand where / why people are saying that PE associate pay is "so low". To be clear, $325-350k+ for a 1st year associate across the average fund above $8-10bn is above average total comp across banking for a 1st year associate...and to say that there are substantially fewer places / seats that would yield that pay, here are a long (but not full) list of funds above $10bn:
look at the bofa numbers lmao
Fuck sorry my comment duplicated I’ll try to delete
I feel really great with my decision to leave banking and have absolutely made more than my friends who stayed in banking in the last two years.
As others have said, banking bonuses in 2021 are not a normal benchmark.
Good PE funds pay $300-$350 and top is ~$400 first year. Maybe a few outlier banks top this, but street associate numbers will almost certainly be lower than that this year.
It’s also simple supply and demand - plenty of people are clamoring over each other to get top PE seats. Very few people want to be a banking associate (vs moving to PE). Banks need to pay to retain talent. PE firms don’t.
Currently getting paid $300k+ (base + bonus) with an allocation of carry as well at the associate level, to NOT be in banking. I think that’s a win. Sure, there are a handful of PE firms that are sweatshops but the vast majority offer significantly better WLB and on par pay vs having a miserable existence as an Associate in IB. I think many are underestimating how soul sucking of an existence banking was and can be. You’re also taking a longer term view on compensation as the avg pay per individual diverges as you continue to move up the ladder. The goal was never for GPs to be getting rich off of management fees in the first place, yet here we are.
Just the pure inertia of people looking at PE as an upgrade/end goal of banking makes it so there's still a large flow of people leaving banking to PE each year, so no need to raise comp. Also comp ceiling is much higher which definitely plays into the decision making calculus
I don’t think you could pay me enough money to go back to banking so whatever I make in PE is fine and dandy (within an acceptable range of my PE peers)
Thanks for raising this. In MM London PE - it's still a bit sh*t - although has been increasing.
A lot of the comments have explained why:
Still, I do believe there is a baseline number which some funds aren't hitting - particularly given lawyers, bankers, consultants etc. have all had decent uplifts over the last 2 years.
Would you be comfortable sharing some ballpark numbers for both cash comp and carry along with fund size?
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