Trapped by IB pay raise?

Recent IB pay raises got me feeling trapped... Interested to see if anyone else is going through a similar dilemma. At a difficult cross-road - go to PE and take a significant pay cut, or stay in IB? I will try to keep this bullet-point style to make an easier read. My stomach has been churning as I fear I might make the wrong decision. Would greatly appreciate different perspectives.     

Quick background:

  • 3rd year analyst at a MM IB in NYC ($120K base + ~80K target bonus)
  • Good rep within group; on track for Associate promote (175K base salary + ~100K target bonus)
  • Just received a MM PE offer ($120K base + ~$90K bonus) at a firm I'd be excited to join
  • Compensation aside, I would rather be in PE than IB - I'm personally interested in investing and have a deep hatred for graphically designing PowerPoint slides all day

Reasons for me to stay in IB

  • Comp. By far the most significant factor. $55K+ higher pay (in base alone)
    • VERY difficult to contemplate taking that much of a pay cut for PE
    • ~$30K I think I could stomach... $60K+ I'm not so sure
    • I do not come from wealth. $60K+ in extra annual income over 2-3 years could meaningfully change my life
    • My near term vision is to stack as much $$$ as possible, mainly to allow myself to take greater risks (e.g. join or build a startup without worrying about bills, student loans, etc)
      • Grinding it out a few more years in IB could give me the gunpowder necessary to take such risks before i become too old and start having real responsibilities (e.g. kids) 
      • For context, i have a ~$200K nest egg now (thanks largely to crypto) 
  • My group in IB is great and I like the people (no A-holes)
  • I have 0 desire to get an MBA
    • ~$200K direct cost & ~$300K+ in opportunity cost? Not for me
  • PE offer is a 2-3 year program
    • Very few direct promotions
    • Not sure what I'd do after, although i'm sure i'd figure it out. Probably a Sr. Associate role at another fund or try to join a HF 

Reasons for me to jump ship and join PE

  • Personally, I am more interested in investing than investment banking
    • Long term: I would rather be in the HF/PE world than IB (in terms of the job itself) 
    • Devil's advocate: I could still get a HF/PE role after a few years as an IB associate (and possibly with higher pay?)
  • Working until 2-4am consistently is mentally and physically debilitating
    • I understand hours can vary considerably across PE (IB 2.0), but the shop I'm considering has a reasonable lifestyle (~60-70 hours a week vs. ~80-100 in IB)
  • Potential to make more $$$ long-term
    • That said, I'd wager the probability-weighted $$$ potential is better in IB - IB seems less Pareto distributed than PE (i.e. much clearer path to IB MD making a few mill each year than PE Partner raking in $10M+, especially in today's environment)
  • Opens new doors in the investing world that IB cannot open (presumably)
  • I could always come back to IB down the road (if psycho)

Curious if anyone else is experiencing a similar dilemma here. I would very much appreciate different perspectives on what I should do (or at least what I should consider)

Potential discussion starters

  • If you've recently struggled with a similar decision matrix, what were your reasons for staying in IB vs. jumping to PE? (or vice-versa)
    • If you chose PE, how did you justify the large pay cut? 
  • For anyone who opted against PE and stayed in IB, do you regret your decision?
  • Are PE firms systematically raising Associate comp to be closer in line with IB?
  • Are there any major pros/cons for PE/IB that I'm omitting or downplaying

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Comments (23)

  • Analyst 1 in IB - Gen
Oct 24, 2021 - 4:11pm

This decision is a lot easier than you're making it out to be. IF and ONLY IF you feel like you have a relatively good WLB and political/social capital at your bank and do not forsee you can get "better" hours elsewhere, THEN STAY because that's striking gold. If the culture/lifestyle is bad, then you physically can't sustain much long anyway so just bounce.

What you DON'T want to do is go down the rabbit hole that some older guys will tell you in regards to "which skillset do you like investing? You want to be an investor? Being an operator or partner could be in the cards one day you know....blah blah etc." tune out all that noise because it's BS. The world has changed too much. You're going to be eating shit and grinning for the pay either way. Long term your goals should be to GTFO of this world and be free through smart financial decisions not chase that next "dream" role or position that'll they'll dangle in front of you like a golden carrot on a string.

  • Analyst 3+ in IB-M&A
Oct 24, 2021 - 5:25pm

The second paragraph really hit home. Appreciate the input. People want you to chase the dragon forever

  • Investment Analyst in AM - FI
Oct 24, 2021 - 4:52pm

Funny but I had to answer a very similar question to you but on a smaller scale. I interned at an AM firm over the summer and loved the firm and culture etc. Before I got the offer was hedging my bets and networking all over the place, ended up getting on with a senior MD at PWP/CVP who offered me a role after few interviews. A few days later I got the offer to return as a FT analyst at my AM shop. It was a tough decision for me as would have made about $40K+ more in IBD but I fell in love with the work/firm/people that I decided against it. I also knew after one or two years in IB I'll be back to square one looking for the next move whereas the AM shop I can stay here my whole career and maybe not make absolute bank and PE is cut-off for me but I'll still make a very respectable living, clearing $500K+ from like 30+ and afford many of the same luxuries my IB/PE counterparts can afford. I saw all this to say do what's best for you, not your bank account. I know both can go hand in hand but once you're able to compartmentalize the two, the decision will become crystal clear.

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  • Associate 1 in IB - Gen
Oct 27, 2021 - 10:21am

What AM firm do you work for?

Just asking because I feel like pay can be all over the place depending on the firm

  • Analyst 3+ in IB-M&A
Oct 24, 2021 - 6:39pm

Trapped because PE and other exit opps almost all pay significantly below IB Associate pay - regardless of inflation

  • Associate 3 in IB-M&A
Oct 24, 2021 - 7:29pm

You sound like you want PE, and are mostly concerned about the pay cut. However, a far more reasonable lifestyle, more interesting work, and optionality (can easily go back to IB, but not vice versa) is worth something. Especially since you don't like IB, it's not like you love your group, hours etc - the associate grind is a LOT of time.

I get comp is your number 1 issue but in your mid 20s, looking at a long career, this isn't a huge pay cut. Let's be real, after the first 2-3 months of the recent pay raises has that incremental money changed your life?

How much does the PE firm love you? Could they come a little closer on comp?

Oct 24, 2021 - 8:38pm

Other things to consider:

- If you left the group to give this PE gig a shot, do you think your group would welcome you back?

- If this isn't the PE job you're excited about, can keep trying to interview

- If it is actually an issue of comp, consider laying out the facts for the PE firm in a way that makes them realize their comp isn't market (but that the money isn't the only thing you care about)

- 60k difference in one year is 40k after-tax. If you plan to stay in this industry / a string of high paying jobs, this won't be meaningful in the long run

Most Helpful
Oct 25, 2021 - 8:46pm

IMO only take the buyside job if you have some visibility or a somewhat clear path to career-track / senior associate role. If it's two years and you get rinsed to B-school, that's a no-go, at least in my view, unless they are guaranteeing a post-B-school offer back. It comes down to dollars and cents and if you will have an incrementally better life on the buyside today (first two years) for the trade-off of slightly lower comp, then that's fine. But, if you are taking incrementally less comp today, have to eat further opportunity cost with 2 years of school (tuition costs + lost comp), then the calculus starts to get very real and significant, in lost-dollar terms, when compared to the option of staying on the sell-side the whole time and being a first or second year VP, vs. a 2nd year MBA student. Don't forget that the real opportunity cost of buyside + b-school is not just the lost dollars today, it's those lost dollars that would have been at work in the market earning you a return that over 20+ years is substantial. There is also a massive opportunity cost with lost time. By the time you are a buyside senior associate vying for VP promotion, you could potentially be up for director promote on the sell-side. And again, the delta in forfeited income are also incremental dollars that would otherwise be at work in the market. 

Bottom line: everyone touts the big payoffs in PE "sometime", "somewhere", down the line...don't worry, it'll be worth it in the long run. But everyone seems to forget the #1 principle of investing / wealth accumulation: the time value of money.

  • Analyst 1 in IB - Gen
Oct 25, 2021 - 9:56pm

You're last few sentences are golden and not understood enough on this forum. You would think all these finance people would be able to understand the value of time in this market.

Oct 27, 2021 - 12:52am

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