evaluate my PE associate offer

Evaluate my offer as a 1st year PE associate:

1st year associate
-$70k base
-January 2009 start date, so $40k signing bonus (I told them I need to get paid for the July-December 2008 half-year time I
put in at my i-bank b/c I anticipate getting $80k bonus if I would have stayed for the full year as a 3rd year analyst)
-Guaranteed $40-60k year end bonus payable in December 2009
-no carry

-ability to co-invest as little/much of my own equity as I want in our acquisitions

= all in comp 2009: $70k base + $40k signing + $40-60k end of year guaranteed + co-invest option

Firm size:
-$150-300mm
-1 main investor (~50% of equity in deals)
-2 partners
-1 vp
-1 associate (me)

About me:
2 years i-banking at top MM bank in Chicago, will be 2.5 when I joing PE shop
3.5 overall / 4.0 econ major GPA from big ten school

 
Best Response

Seems to be on the low end, but I've been out of the PE job market for over a year. About a year ago, I would have thought that a shop the size of what you describe would have paid something all-in around $155-180K annually, but the current compensation structure might just be reflective of what the economy today is willing to bear. They are being fair with the signing bonus, though your base salary is a concern and it's not clear how much upside you are going to have with your bonus in your following years, especially if you're only looking at $40-60K for your first year. Keep in mind that your first-year all-in number is somewhat deceiving because so much of it is loaded in your "signing" bonus.

I think you should discuss with them to get a sense as to what your compensation will be like in years 2 and 3 at the firm, and also see what other small to mid-sized PE firms are paying these days. I'd be curious to your findings so feel free to post them here.

Also, not quite sure what the purpose of stevenbn's question is, unless it reveals some unique insight that is unbeknownst to me.

​* http://www.linkedin.com/in/numicareerconsulting
 

The PE shop I interned with ran on fewer hours: 60-70 a week (closer to the lower end). The associates there were definitely paid less that what I've seen suggested as normal salary for an associate with 2 years of banking experience, but were all ex IBD burnouts and welcomed the 20-30 some more hours they had free each week.

On the other hand, the two partners worked right alongside the associates, taught them (and myself) any and everything, and as always, provided alot of solid insight into the deal process.

EDIT: Ah yes, my point. In case you didn't deduce, the shop has a tradeoff: their size keeps them at 4-6 deals a year, and most are anywhere from 10-100 million. So the tradeoff is the deals are nowhere near as large as the big MM players, and of course miles from the megafunds. But regardless, we all got alot of good insight into how to manage relationships with the staff on these companies: at the MM, it's almost as important a consideration on value as a startup-style investment.

 

Its a startup PE fund that began around this time last year. They made one equity only investment in Winter 07, went very deep on a potential in spring/summer 08 but passed, and is now about to close on a $20 million equity investment with 4x leverage. They target about 1 deal per quarter, with very extensive due diligence, so the deal pipeline is very low.

Hours have been told are ~50 per week with 1 weekend a month.

 

Except the base is lower than I expected. I'm not too worried about the bonus but you should definitely sit down with them and figure out where they want you in the next 2-3 years (i.e. career path). Ideally, you can move your base/comp a lot closer to market in yr. 2 after they see what they're getting for their money. Just my 2 cents.

By the way guys, remember that not getting top base and top bucket bonus is still a lot of money. Cost of living in the rest of the country is (obviously) not as bad as NYC where even if you make top bucket you still have 3 roommates in your ancient apartment...

Sorry, cheap shot... still only on my 2nd cup of coffee this morning.

Dawg, good job on getting a decent offer in the middle of this job market mess.

 

This is what I figure:

at minimum my 2009 all-in comp is $140k all-in ($70 + 40 + 40)

at maximum my 2009 all-in comp is $160k all-in ($70 + 40 + 60)

regardless I still get 1. i-banking bonus for 2008 2. Lowest possible 2009 bonus total of $80k, which is not too bad considering i-banking bonuses this year were the same and are projected to decline/remain flat next year 3. PE experience 4. ability to invest with fund 5. plus come 2010 I can ask for $80k base + bonus range $60-80k and say I accepted a haircut in 2009 b/c they paid a $40k signing bonus 6. So pretty much I guaranteed my income for the next 2 years in the $140-160k range, which I think is a plus given the current economy

 

Seems a bit low, but as you move lower in AUM the comp packages tend to skew quite considerably. To give you a few comps based on offers received from my college roommate (all 100-300mm funds). Mind you these are for 1st year associates after 2 years of MM banking in a somewhat frothy hiring environment, 2007.

Midwest, fairly established fund, all in $180k. Midwest, established fund with no real infrastructure (6 partners, 1 VP, 1 analyst) 100k base, 100k bonus. West Coast, fairly new fund with 4 partners and 1 analyst, all in 180k.

Co-invest opportunities, no carry, no sign-on (relocation reimbursed).

 

Wow, interesting.... Do most PE firms out there provide their employees with co-investment opportunities? Normally about how much do they invest at associate level? Are they called "limited partnership" then? And do you get your return once that investment is sold to another financial buyer or through IPO?

Sorry for my ignorance.

 

You're grouped in with the GP co-invest and obviously aren't charged any investment fees. Some funds structure it so that GP co-invest pays dividends yearly, some funds structure it that you get a pro-rata dividend or payout as equity is realized. So if you do a dividend recap or a sale, that's when you'd get your money, and that's how my fund works.

Like I said before, the associates invest anywhere from 2/3 thouand to 50 thousand. Depending on how much you like the deal and how much cash you have.

 

Thank you GameTheory! That answers a lot of questions I had. How common are these co-invest opportunities though? Do most PE firms offer this to their employees?

Thanks again.

 

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