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
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.
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?
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.
It's low. Would've expected ~$200K for a firm of that size fund (assuming it's fund size, not total AUM).
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.
What city?
Tell them to take that offer...
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.
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.
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.
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.
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
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.
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:
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.
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?
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.
Hey rustyboots, I was heads-down on a deal so forgive the slow reply. Thanks for the kind words.
This again is very subjective. I think there's a distinction between knowing you want to leave private equity but being unsure where exactly you hope to end up and not knowing whether you want to leave private equity for something else.
If it's the former, you're probably not harming yourself much by maximizing for comp. If it's the latter, the foregone value of developing your skill-set in a relatively low-paying but otherwise wonderful role is not a tax I'd comfortably accept.
Time and time again I have bet on myself. I always want to learn earlier so I can practice those learnings to my benefit sooner. I'm self-aware enough to know I have a risk tolerance few people do, so please know that I'm not heedlessly suggesting you forgo a comfortable comp package for some abstract idea of learning.
If you're truly undecided about leaving the space, I'd recommend reaching for new experiences available to you from your current seat.
If that means doing a deal in a different industry than you have before, ask the partner you're closest with for help approaching the partner you want to work with.
"I've enjoyed my time immensely here and have been able to identify that this is the exact sort of shop that's perfect for a long-term role in the industry. [verbatim include the rubric from my prior comment if you want] However, I want to be thoughtful to make sure that I do want a long-term role. I'd be excited just to try a different flavor than consumer/tech/industrials/whatever. If I wanted to learn how Jim looks at the world, what's the smartest way to ask him to let me in on a deal process?"
If that means getting really involved in portfolio support, raise your hand in a similar manner.
"I'd love to learn more about how management performance drives business outcomes. I Right now I'm only an observer on two boards. Steve's latest deal looks really interesting, how do you think I could ask him to let me get involved with the executives there?"
I would focus first on solving the question of whether I wanted to be there. That's an easy and solvable question, but it immediately unlocks the answer to your way more difficult and amorphous question.
Good luck.
Thanks, appreciate the great advice. After looking at it through this lens I realized the fund hits on all of the soft qualities I was looking for, offers partner track, strong deal flow and most importantly is a group of people I could get along with day to day. I certainly felt it was the best fit overall compared to other funds I have gotten to know.
For anyone wondering, the final offer came in a closer to ~$175k plus a sign-on and additional economics as a sweetener. This is roughly comparable to ~$220k in NYC. I ended up accepting, see you on the buy side.
Welcome! Glad you were able to negotiate a little bit better comp.
A little off topic but could anyone shed any light on the difference (if any) of PE compensation coming from a 2 year analyst stint vs. 3 or 4 year analyst/associate stint? Most postings I've seen say something like compensation is commensurate with experience. How much of a difference would you expect?
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