Ever wonder why so many private equity firms strive to raise ever larger funds? Simple. Larger funds generate more income–more management fees for certain, and more carried interest so long as their deals turn out to be sufficiently profitable.
More management fees translate into higher individual pay, since firms don’t hire at the same pace that they expand their assets under management. And that has led to some remarkable differences in pay for folks doing similar work at large and small shops. More evidence for these disparities comes from the 2019 employment report released by Columbia Business School this fall.
For the estimated 7 percent of graduates in the 2019 class that ended up in the private equity business, base salaries ranged from $75,000 to $375,000, with a median of $152,500. Other guaranteed compensation ranged from $10,000 to $225,000, with a median of $40,000. Just under half reported receiving some form of other guaranteed compensation. The sample of graduates used in this analysis does not include graduates who started their own businesses or joined a family business.
It is not clear from the report how combined base salary and other guaranteed compensation differs–or what prior experience individuals brought to their firms. Still, even if the graduate making the lowest base salary of $75,000 received the highest $225,000 in other guaranteed compensation it would be far less than the starting salary of the graduate making $375,000 in base salary.
More evidence for pay disparities comes from the carried interest and compensation survey released by Chicago publisher PE Professional this fall and based on a survey of 300 funds. Associates working at a firm whose latest fund was less than $100 million in size can expect to make a salary of $100,000 and bonus of $40,000, the results suggest. Those working at a firm whose latest fund was more than $1 billion in size can expect to make a salary of $150,000 and a bonus of $117,500.