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Private equity pay: where the money has been made

 Private equity firms might be having a few issues with costs and exiting their investments, but this has not prevented them from paying very handsomely. 

US recruitment consultancy Heidrick & Struggles has released its 2023 compensation report for North American private equity firms, and the numbers are impressive. 

Although salaries and bonuses and private equity firms are a healthy chunk of cash (and always have been), the real money is, as always, in the carried interest. This is the percentage of a successfully executed private equity deal that those that worked on it (from partner to associate) get to keep. When deals are exited successfully, it can be very high indeed.

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Heidrick & Struggle’s data suggests that at the top end, a managing partner in a private equity firm with at least $1bn in Assets Under Management (AUM), can expect to earn at least $3.5m in salaries and bonuses, plus around $35m in carried interest over a fund's lifecycle (typically around five years). 

The higher the assets under management, the higher the carried interest. Although exact numbers are scarce for managing partners at megafunds with over $10bn in AUM, Heidrick & Struggle’s data suggest that an MD at such a fund could earn $100m at such a firm in carried interest.

If you're planning to become managing partner at a fund with $10bn under management, all of this sounds really great - providing that the future resembles the past. For the moment, however, many private equity funds are struggling to exit investments and so carried interest may not be forthcoming, or certainly not at the levels of the recent past. - Which is probably why funds like Apollo are suddenly keen to skew compensation towards carried interest as an incentive for partners to help climb out of the whole.

Many people in private equity also don't receive carried interest at all. You'll need to be an investment professional to get it. Heidrick & Struggles says some associates receive it, but even in a good year their payouts are predictably smaller. However, Heidrick says that even associates at funds with over $40bn in AUM can (or could) expect $4m in carried interest, which explains private equity careers' enduring appeal to juniors in investment banks.  

Heidrick & Struggles don't say explicitly that private equity pay is likely to fall from these heights. They do say that pay will probably remain stable next year, with "exceptions."

 

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AUTHORZeno Toulon
  • M
    M
    28 October 2022

    i dont understand the numbers about carried interests... Are they the average of what people receive each year or what they receive once in 5-7 years when the fund ends and profits are harvested?

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