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.

Draper_LDN:

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:

Draper_LDN:

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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Comments (45)

Feb 5, 2017

Why don't you look at the Heidrick & Struggles private equity compensation report? That will make things a lot more "clear"

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Best Response
Feb 5, 2017

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 PS250-500k and with a PE you could easily pull PS1-5m 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!

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Feb 5, 2017

Yeah you are right can get rich either way, depends on what you are good at. If you mediocre then you wont make money in any industry I suppose

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Feb 8, 2017
Draper_LDN:

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 PS250-500k and with a PE you could easily pull PS1-5m 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).

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Feb 9, 2017

It's not as much to do with the carry bonuses received when you are associate as much as it is around IF you actually received carry as an associate / entry point. In Europe it's not a standard that Associate gets carry, which means you have to do 3 years and then another 5-8 years before you get a carry payment.

Regardless - as you say - the key for getting the big pay-out is to stay with the same PE for a decade - otherwise you risk losing out if you can't negotiate a sweet deal at your next PE job.

Worth noting is that with a lot of the EBs you actually get 100% cash paid out with nothing in stock or deferred, which is another reason for a lot of mid-level to senior bankers leaving the BB to the EB side. Look at Deutsche as a perfect example...

If you are a good banker your total comps would be in line (generally speaking) with what you will make at a good MM PE fund over the course of your career. Payment profile is just different.

Feb 5, 2017

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!

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Feb 6, 2017

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.

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Feb 6, 2017

how's that even possible? That MD makes 20 mm a year?? What did he do that other people didn't do?

Assuming you are at a BB?

Thanks for doing this!

Feb 6, 2017

Good 1st year associate at BB will make $150,000 base + 80%-90% of base as salary, which translates into more than what typical MM PE pays the first year associate (~$250,000). Do your math.

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Feb 8, 2017
Almost there lol:

Good 1st year associate at BB will make $150,000 base + 80%-90% of base as salary, which translates into more than what typical MM PE pays the first year associate (~$250,000). Do your math.

250k isn't a generic MM offer. MF is around 250 - 275

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Feb 8, 2017

I know of at least 5 mm funds who pay 250, MF (think carlyle, etc.) is paying 275

Feb 8, 2017

Have to agree with HugLife here, a few elite MM's may pay 250k for first years but the majority I am aware of are paying closer to 175k - 200k for a first year. The top MF's may pay 250 - 275 but many large funds pay somewhat lower, like 200k - 250k. There is a lot of variation between funds and sometimes even within funds themselves (although less so than in banking).

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Feb 13, 2017

Doesn't take into account cost of bschool, opp cost, the fact that if a bank has a shitty years, associates and VPs get hit the hardest in terms of bonus, etc. I can go on and on. Yes, some analysts go straight to associate but it's not all that common (or didnt used to be back when I was in banking).

90% of banking analysts want to go to PE because they know the long-term opportunity for creating wealth is much higher than if they stayed in IB. Don't be fooled by short-term figures. There's a reason why it's so competitive.

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Feb 9, 2017

Generally, if you go to an upper MM firm (or larger), you will see a bump in comp almost for sure. If you go to a "standard" MM firm (I'm thinking AUM $500M-$1B, so latest funds of maybe $200M-500M or so), your comp may see a bump but it's not going to be meaningfully different from what you'd get paid if you stayed in IB. Anything smaller and you may be taking a pay cut.

Feb 9, 2017

So much bad information out there, it's crazy. Yes, on average PE associates will make similar comp to BB associates. But keep in mind, most PE associates don't have crippling bschool debt. Also when carry kicks in at the Senior Associate to VP levels, pay really starts to jump. I know a first year VP that made just under $1M with carry after a huge exit. Obviously not the norm, but it can happen especially if you're at funds that are killing it.

Carry at VP levels and up is why PE is so desirable. Look at comps for the average principals at a MM or upper MM PE firm and compare them to what a VP or Director will make at a BB. Perhaps a similar floor, but the ceiling is so much higher in PE.

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Feb 12, 2017

Can someone tell me how much does principals make at a MM or upper MM?

I heard that VP in IB makes 500k on average all in before tax, is that correct? Talking about VP in EB or BB here.

Feb 13, 2017

This is an idiotic question. Impossible to tell you. Depends on how well the fund is doing, if they had any huge exits, etc. I know some VPs / principals that made 400k in one year. Others made over 7 figures because of carry. It varies.

Feb 12, 2017

I would think it's the other way around - if you are looking at PE in the first place you are likely a banking analyst considering staying on as an associate. If you do the PE associate program, you will almost always need to go to b-school to potentially come back to PE in a lower-tier fund if you are lucky (yes there are some funds like Apollo or ABRY that promote directly but it is not as common, and do something else if you are not as post-MBA PE competition is pretty fierce, while if you stay as an associate you can just move up to VP/director/MD without ever going back to school). Now that some IBs are promoting you directly to associate after 2 years, this is how I think the trajectory should look between someone that went up in IB vs. up in PE:

IB Path / PE Path
Year 1-2: IB Analyst / IB Analyst
Year 2: PE Associate/IB Associate Stub/1
Year 3: PE Associate/IB Associate 1/2
Year 4: MBA/IB Associate 2/3
Year 5: MBA/IB Associate 3/VP 1
Year 6: PE VP / IB VP 1-2

So by year 6 the IB VP is making $500K+ without having spent 2 years in business school and with $200-300k of cash per year in years 5 and 6 while the PE guy was traveling the world with his/her HBS friends. I'm sure that's extremely fun and rewarding, but from a pure comp standpoint making $1m as a PE VP in year 6 (which I agree isn't unreasonable) doesn't even seem that much better after all that. Plus you need to consider the increased career risk with switching jobs and re-recruiting vs. staying put at your BB/EB. The level of talent is much higher in PE so you may not get that post-MBA job at Kohlberg/Irving Place/Crestview/Odyssey, etc. even after 2 years at GS and 2 years at KKR/TPG/et. al., while most analysts who stay on in banking are seen as top talent for retention/recruitment purposes. That potential for higher pay is also offset by (1) the chances of not getting into a top 3 b-school (or even HBS/GSB) which makes recruiting v. tough (2) tougher to move up to partner track in PE, and (3) more comp tied in illiquid carry which can vary significantly in value depending on fund performance vs. cash

This is all moot if you prefer PE to IB or vice versa from a jobs standpoint, but I just don't think the PE route seems that much more exciting from a pure comp. standpoint

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Feb 13, 2017

This is, of course, assuming you need the MBA to get promoted. Not everyone does. I know many people (myself included) that were fortunate to make the jump to VP without the MBA. Makes a huge difference in terms of saving money and wealth creation.

Feb 10, 2017

I've always been unclear as to when and how "carry" is paid.

Say a senior associate gets given ~$300k worth of carry vesting over 4 years; do they just get paid that amount after the vesting period is over and LP distributions have been made? Or is it on a deal-by-deal payout?

Are there any additional carry awards in that time or does one only get more carry once they are promoted and/or when new funds are formed?

Feb 10, 2017
princepieman:

I've always been unclear as to when and how "carry" is paid.

Say a senior associate gets given ~$300k worth of carry vesting over 4 years; do they just get paid that amount after the vesting period is over and LP distributions have been made? Or is it on a deal-by-deal payout?

Are there any additional carry awards in that time or does one only get more carry once they are promoted and/or when new funds are formed?

your question assumes that many / all PE firms are the same, when in reality, their waterfall schedule could be american, or european, and carry could be paid on a deal, fund, or company basis...it's actually a point of differentiation when recruiting for PE firms (how the carry is paid out / carry participation for juniors)

Feb 10, 2017

Great point. Every deal, fund, firm is different. Let's just say that as a former associate at a successful MM firm, I've seen plenty of exit waterfall schedules. The amount of carry that flows through the firm on good exits is pretty ridiculous (I, of course, got peanuts compared to the big dogs).

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Feb 13, 2017

so shes working on the trading floor of a PE firm? how is that working for her...

Feb 13, 2017

no no, trading floor of an investment bank, my friend is now working on the trading floor of an investment bank as well, but used to work in PE, as in pure PE, not trading floor of a PE firm....
not sure if understood the question correctly, thks

Feb 13, 2017

Private equity funds typically operate on a 2 and 20 fee structure - 2% management fee on the fund, and then 20% on the carry - e.g. a $1bn PE fund would be drawing annual management fees of $20 million, and the carry wouldn't be realized until they exit their portfolio companies. Therefore, PE firms use the management fees to cover overhead (salaries, bonuses, transaction costs, office expenses, etc.). The bonus will be somewhat based off how the portfolio companies are doing (i.e. expected carried interest), but the senior-level professionals' compensation is going to be more sensitive to the amount made in carried interest. Due to this fee-structure, larger funds are going to drawing more management fees, and the salaries and bonuses of associates will be higher.

In the case of your friend, the PE start-up may not have a fund. They could be using the fundless sponsor approach, in which they will find an opportunity and raise equity from a group of LPs to acquire the company. The idea behind this model is to build a successful investment track-record and leverage this to raise a fund - an increasingly popular model as PE fundraising has dropped significantly from 2008-10.

Under the fundless sponsor model, the PE firm will clearly not be generating management fees; they will draw one once an investment is made (typically a 1-2% on the equity invested to acquire the company - negotiated as part of the deal). However, they will negotiate for a carried interest fee, so majority of the gain for the fundless sponsor is achieved on the back-end - the sale of their portfolio company or companies. It's my best bet that this is the model of the fund that you're friend is working for, and they have probably structured her compensation structure to be aligned with the firms model (lower salary but a solid bonus if their portfolio company or companies are performing well).

Hope this helps.

Feb 13, 2017

u r a star, thk u vm for that...

Feb 11, 2017

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

"You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right."

-Warren Buffett

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Feb 11, 2017

Base can be higher in IB. Commonly is.

A 300k base with a 150k bonus is seen in banking.

PE guys usually are looking at a 200k base with a 250k bonus.

Making the numbers equal, but obviously more money on a weekly basis is value more because nothing is guaranteed.

I do headhunting, the guys who are in IB tend to be more content. PE guys can be very nervous year-to-year. Though, there are also guys getting 1m+ bonuses, that's not happening at a junior level in IB.

My IB clients seem to be happier 2-3 down the line. That is usually when the disparity between base salary becomes evident. It makes sense, having an extra $1500 in your pocket each check makes a big difference in lifestyle.

Feb 12, 2017
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