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Private credit pays much more than private equity, for the moment

Private equity people aren’t having a good time (as KKR’s results earlier this week showed).

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Their cousins in private credit, however, are going great. A recent compensation report for New York-based investment professionals from recruitment consultant Selby Jennings says private credit professionals’ compensation (salaries & bonuses) has outstripped pay in private equity.

 

The numbers show that, on average and in terms of salaries and bonuses alone, private credit professionals out-earn people in private equity at all levels.

That, however, is only part of the story. If you work in either private credit or private equity, the big money is made in carried interest. And carried interest in private equity is generally far higher than in private credit. 

A recent report from search firm Heidrick & Struggles showed that top 25% of private credit executives in Europe earned an average of €13.7m ($14.8m) in carried interest during 2023 - a tidy sum.

But in the world of private equity compensation, it’s not that much. A separate recent report (on private equity compensation in the United States) showed that the merely average partner or managing director at a decent-sized fund (over $1.5bn in assets) makes that much carried interest working in private equity. 

Naturally, pay varies by fund size. The biggest private equity and private credit firms pay the most. Selby Jennings' data showed that even in terms of salaries and bonuses, big private equity firms pay more than their private credit counterparts. 

That doesn’t mean that private credit can’t be spectacularly rewarding. A recent 8k filing from Ares showed that both its CEO and its credit head – Mike Arougheti and Kipp deVeer, respectively – earned $200m each in restricted stock units (RSUs) that’ll vest in equal instalments between 2026 and 2029 for last year. Ares is shifting away from incentive fees to a RSU-based model to compensate its senior executives, following a pattern set by Apollo and KKR.

Private credit is in a golden era. In December, Bloomberg cited numbers from State Street showing that private credit had generated higher returns than private equity in every quarter bar one since the start of 2022. It may not last. S&P analysts say that the industry is exposed to market stress, by information asymmetry, and potential illiquidity.

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AUTHORZeno Toulon

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