Is this associate compensation competitive?

dtowninv's picture
dtowninv - Certified Professional
Rank: Monkey | banana points 51

A lower MM PE firm offered $160k cash comp, with a vague description of deal participation. This is for a pre-MBA associate in a state with no income tax and fund size ~$500m. Is this reasonably competitive? I like the firm but was kind of disappointed with the base / bonus

Edit: Confirming that the fund size is ~$500, AUM is higher. Thanks all for the advice, this has really turned into a great discussion of how to diligence PE firms when deciding between offers

Private Equity Interview Course

  • 2,447 questions across 203 private equity funds. Crowdsourced from over 500,000 mem.
  • 9 Detailed LBO Modeling Tests and 15+ hours of video solutions.
  • Trusted by over 1,000 aspiring private equity professionals just like you.

Comments (16)

Feb 4, 2019

In my opinion that's pretty fair maybe a bit low. Could maybe be a little bit higher, but funds with low AUM can't afford to pay the usual 250-300k that you see quoted around here all the time.

Deal participation will be key, not really carry but co-invest, especially if they'll let you take leverage from the fund to do so.

I'd ask them to spell out what the co-invest rights will look like and then I'd try and find some of the public information available online for PE comp and try to use that as a case for why the salary should actually be xxx. If you could squeeze another 10-20k out of them, I think that would be a huge win. Even if you can't $160k in a no income tax state means you're in Texas, Florida, or Washington. That's enough to comfortable live on until you start moving your way up. If the opportunity is good, I'd stick with it for a few years for the learning.

Edit: I read fund size as AUM. If they recently raised a $500M fund and the AUM is larger then $160k would be low.

    • 5
Feb 4, 2019

Thanks all, these are great responses and confirm my thoughts that it was too low. It's a shame, I like the team and they have strong deal flow, but I obviously want to continue my upward growth trajectory in comp at this pivotal time. For further reference it's a second tier city, so while better than NYC it's not cheap. Think Houston / Dallas / Miami metro areas.

In your experience, how flexible is negotiation? IB analysts have a fixed comp structure so I don't have experience negotiating. Are junior private equity roles just as rigid?

    • 2
Feb 4, 2019

For everyone who is saying the comp is way below market, I myself worked at a small fund for a while and have friends at sub $500M shops that I've talked with about comp.

I just had a friend yesterday, who is a VP at a ~$500M fund in the midwest tell me about their Associate comp packages. First year associate for them is $160k and moves up to the $200k range as a Senior Associate.

Some shops will want to pay market to think that they need to compete, but I think many others realize they don't want to be competing for the talent that is just looking for the biggest check. The real value to a small shop should be learning the E2E deal process, exposure to everything, and opportunity to move quickly into a role with carry.

PE firm comp isn't rigid, so if you think they really want you, I wouldn't be afraid to push them for a little more comp. If they're not willing to do that(or can't for whatever reason) that should give you license to ask for other things like carry, co-invest etc. If this is your only PE offer I'd be careful though. Whenever I think about negotiating comp, I'm always half ready to walk if I don't get what I want. If for some reason your new employer gets rubbed the wrong way by your ask, you're starting out in a bit of a hole.

    • 3
Feb 4, 2019

It's low. Would've expected ~$200K for a firm of that size fund (assuming it's fund size, not total AUM).

Feb 4, 2019

Would push hard for $200K. I feel like you can learn anywhere and firms that underpay junior talent are indicative of larger issues in the way they look at junior resources.

Learn More

9 LBO Modeling Tests, 10+ hours of PE Cases and 2,447+ interview insights across 203 private equity funds. The WSO Private Equity Interview Prep Course has everything you'll ever need to break into the competitive PE industry. Learn more.

Feb 4, 2019

What city?

Funniest
Feb 4, 2019

Tell them to take that offer...

    • 6
Feb 5, 2019

Don't listen to these fools! Yes it may be a bit low (although probably not as low as you think) at this point in your career you need to take roles that position you for where you want to take your career. If you want to break into PE, assuming you don't have multiple other late round interviews, and you like this team/think you'll get great experience, you should definitely take it. Don't worry about and extra 20-30k - that will seem meaningless to you 10 years from now if you're able to achieve what you expect out of your career.

    • 1
    • 1
Feb 5, 2019

That is a pretty low ball offer. I think the more important thing would be how does that increase over time? Even in lower cost cities $200k - $250k cash comp for a first year associate is market. A $500MM AUM fund should easily be able to pay you market. PM me if you want to discuss in further detail.

    • 1
Feb 5, 2019

I think the cash comp that @Mephistopheles outlined is probably fairly accurate for a $500MM fund but a little high for a $500MM AUM fund.

If the OP is only concerned about comp, this is a low offer but it also could just be a starting point. I have found that a lot of funds in the LMM do not have a ton of data points on what market salary is a lot of time this information is stale so if you can go back to them with some relevant data points they might be willing to negotiate.

Another factor is when did they raise their most recent fund? If they are on the tail end of the fund, $$$ might be a little tight and a new fund raise would give you a good opportunity to renegotiate your salary and other economics.

    • 2
Feb 5, 2019

He brings up a good point. Fund life is very important here. Another thing to think about is if the fund is at the end of its life, is there fresh capital coming in to deploy because that will determine deal flow, etc.

Feb 5, 2019

OP -- a few factors for you to consider:

1) Net of tax, your total cash comp is probably in-line with someone in LA/SF/NY, maybe even ahead
2a) You are just starting out, don't let a few dollars get in the way of what potentially can be a great education
2b) What is your path at this fund? What is your desired path? Do they align? For example do you want 2 & out while they see this as a career/partner track role? What if opposite?
3) Don't discount co-investments, especially in L/MM where addons can be picked up for 4-5x, which in today's environment can be a bargain. This can be extremely lucrative

    • 8
    • 1
Most Helpful
Feb 5, 2019

I would sidestep the question of cash compensation for a broader picture of compensation. I am now struggling to remember who first told me this (I've said it elsewhere on this site), but you should think of compensation as having two elements: the money you get paid that you benefit from today, and the skills and relationships you get 'paid' with that you'll benefit from tomorrow.

In your shoes, I'd spend all my energy assessing the culture and methodology of the firm.

  • Is this a place where senior people take the time to show junior investment staff the intricacies of each component of the deal process? Are you going to be given enough support on your first one or two processes to get your legs under you, then eventually enough leeway to stand on your own two feet and run with one yourself? Or is it a place where you're simply tossed work with a deadline and expected to piece together the bigger picture yourself on your own time.
  • Are people collegial and collaborative, helping each other out with projects? Or is it an atmosphere where people silo themselves and adopt a dog-eat-dog mentality?
  • Are the partners respected in the professional community? Do service providers (banks, lawyers, vendors like accounting / audit / tax), dealflow sources, industry executives, other investors speak of them favorably? Can you diligence this on both professional skill and personal behavior? Or do people speak neutrally or disfavorably ("I wouldn't let him into a process if he begged" / "Sure, I showed them something once, they soaked up a ton of time and never even submitted a bid at the end of it all")?

The real question is whether this is a place you feel like you'll learn a lot and grow into the investor you hope to be. This has an objective and subjective component. Objectively, you want to be someone who's knowledgeable about sourcing, structure, oversight, exit, and fundraising.

@Layne Staley has some kind of heuristic around this that I vaguely recall having some kind of sports analogy, like the basics of pitching or something like that.

Subjectively, you want to be attuned to the specifics of:

  • sourcing for the industry(s), deal sizes, and deal types that help keep you jazzed to get up in the morning and do this job
  • structure in a way that lets you attract the opportunities you want to (e.g. being low-IQ about management participation on the cap table means sophisticated operators will probably sniff that out early in conversation with you and pursue a different financial partner)
  • oversight in the way that lets you live the dynamic you're comfortable in (e.g. do you like flying 10,000 feet high and getting fed stuff at the board level by an experienced set of operators you installed, allowing you to manage six boards personally ... or do you really like sitting behind the steering wheel and driving the whole bus yourself, restricting you to two boards and narrowing the type of executive who is a good match for you to those who can deal well with a lower level of autonomy)
  • an audience of qualified, credible, and motivated buyers whose personality and psychology you understand and grok with (strategics vary widely between industries [operators in the FIG universe tend to be pretty cerebral and also moderate to high in ego, vs. the stereotypical barrel-chested Midwestern steak-and-potatoes guys in a lot of industrials or manufacturing businesses], and the motivations strategics have are very different than those of sponsors)
  • fundraising from the type of LP you want to have in your vehicle (do you want five big LPs that are each 15-25% of your fund, or do you want 80 LPs and a really well built-out IR apparatus inside your business)

In short, this fixation on cash comp feels short-sighted. You should identify what type of investor you hope to grow into, then grid this opportunity against that. If it scores highly on these qualitative dimensions, you can more happily commit to a slightly-below market cash offer knowing that you're getting 'paid' with a bunch of intangibles that most people aren't thoughtful enough to identify.

Also, if this is a state like Texas or Florida, you're pretty much on par (maybe even ahead of) with your New York / California brethren on take-home pay. I would be explicit and ask your prospective employer if that was part of their calculus in setting the pay scale. Chances are it was. If I know I have to pay someone $250k in New York but I could put them Texas where ~$175k yields the same post-tax income, that feels fair to me.

Lastly, there's a huge difference between a firm size of $500m (total AUM) and a fund size of $500m (most recent vehicle). If it's the former, your comp offer is not unreasonable at all. If it's the latter, I think you have more wiggle room to negotiate upwards.

I hope this works out for you.

    • 10
Feb 5, 2019

Honestly, this was just the sort of "reality check" I needed so thank you very much for the wise words. I am at a firm that checks a majority, if not all, of these boxes. However, since cash comp is low (makes sense given fund size), I often find myself looking at what others are making and feeling slightly "cheated". I realize this is not the case and I am in a pretty great spot if I look at it with a long-term view.

One questions I would have is do you think all of these non-cash elements are still as important if you were unsure whether you would stay in the industry in the long run? I feel like a lot of items you listed are very relevant in terms of the funds future success and developing as an investor; but, if you are thinking about exiting the industry in a few years do you still think these or as valuable or would you place a higher emphasis on cash comp so you could exit with a largest nest egg?

    • 1
Feb 5, 2019

I haven't put much thought into exiting the industry as I do not intend to leave any time soon, but I think the answer to your question is the same. I'd say the two most important non-cash qualities are 1) Involvment in all aspects of the deal process and senior exposure, without this you risk becoming a model moneky do-boy with no real transportable skills. You don't want to be some senior guys processing bitch. If he's worth working for, he'll understand that and want to develop you. The idea being that they are grooming the next generation to take over once we're old and grey. 2) Work-life balance. Don't take this the wrong way. You should be happy to run 80+ hours a week when you're in the thick of it...and so should everyone above you. The thing you should think about though is do your bosses plan effectively and demonstrate that they value your time or do they sit on something for weeks and dump everything in your lap last minute? While the latter is less common on the buy-side, it still happens. Learning to identify task masters like this early is a skill in and of itself, but I would not spend much time working for someone like this. They'll burn you out and you'll get zero career development out of them because the honest truth is they don't care about you and view you as an expendable resource.

    • 4
Feb 6, 2019