For PE folks who don’t make partner, how much $ is left on the table?
Something I’ve been curious about it for awhile. We know the typical structure of mid-level (VP, principal) compensation structures at PE funds. High six digits to low 7 digits cash comp + refreshes of dollars at work that take ~5 years to vest but potentially longer to actually pay out. We also know that it’s increasingly hard to convert from principal to partner to guarantee yourself a long term ish seat at the current firm.
So, my questions are:
- For the folks who don’t make partner/never see the actual dollars at work pay out, how much money is typically left on the table and how much did they actually earn during their VP and principal years?
- How do current VP and principals think about their “actual” compensation given the uncertainty of collecting on their dollars at work?
I just assume carry never materializes. My cash comp is very high and I can sustain a very comfortable lifestyle in NYC off of that while saving a lot, and if I ever clip a meaningful carry check, I'll just save for a condo, then some luxury purchase for myself and/or my girlfriend I guess.
I picked PE because I got more cash comp at an earlier age than my banking counterparts for a job I found much more interesting. I've never viewed carry as a real reason to pick this job.
Really pe cash comp is usually not higher than banking ?
Yeah wtf, please develop VP in PE
Principal at my UMM make $750-1m cash
I made about 400 as a junior associate (2 years YoE), 550-600 as a first year VP (4 years YoE + B school) and now about 650-700 as a more tenured VP (6 years YoE + B school). That's probably at worst equal to my banking peers unless they all severely undersell to me how much they make cash comp wise (in which case, kudos to them).
Regardless cash wasn't the driver, but if I was making much less cash comp than my banking peers, given how little I think of carry i may have gone the centerview or activist HF route instead (had turned down an offer from a top activist so have a good idea of their comp structure).
No wrong answer as long as you like what you do, or else you'll burn out too quickly to actually generate comp.
Keep in mind cash comp in PE starts to plateau around $1-2m p.a. The real delta in earnings comes from the carry value working in the background and the stability means that your average through the cycle earnings are way better than a banker who may clear $1-2m+ in the good years but is closer to $0-600k in the down years.
Most of the PE folks i know treat their earnings in a similar way, ie discount the carry heavily and treat their cash comp as their only earnings.
The reality however is that if you make $1-2m cash + another $1-4m p.a in carry, that $1-4 on a tax equivalent basis is like making $1.5-6m (carried interest vs ordinary income tax rate). And while it’s very prudent to completely ignore it and the headline figures assume 2.5x MOIC and are therefor overstated, it’s still real money even if handicapped to a more likely 1.5-2.0x MOIC realization.
So you’ll essentially end up with banker like cash comp, a premium to it actually, with far more stability and not really any down years like you would see in banking. That, plus the base-to-conservative case carry payout means that once you’re a senior principal/Partner, all-in you’re making like $1-3m+ more than a banker p.a., almost all of which is savings. Run that forward 10 years, plus reinvestment appreciation, and you’re looking at a net worth that is 8-digits higher than your college roommate who’s an MD at JPM.
What’s the risk of getting kicked out of PE? There are hundreds of PE associates each year and of those like 1/4 make it to VP?
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