Guy Hands, the founder of private equity firm Terra Firma has a theory – to avoid attracting money-motivated graduates who are also applying for jobs at Goldman Sachs, cut pay and wipe out bonuses for juniors. At Terra Firma, which is based in the UK, the upside for analysts joining the firm’s graduate programme is that if they hold out for five years it will put down a 40% deposit to help these millennial employees get a foothold in the notoriously expensive London property market.
The problem is that most other private equity firms are not following suit. Not only are investment banks creating a golden cage for their young recruits, buy-side firms are offering even more to entry level and junior employees to sway them across from big banks. New figures from Wall Street Oasis suggest that private equity firms pay their first year analysts the same on average as bulge bracket banks – namely $102k. After that, private equity firms stretch ahead.
In their second year, analysts in PE bring in $140k (compared to $113k at a large bank) and by the time they make it to VP, private equity professionals are earning an average of $69k more.
More to the point, most junior private equity jobs are missing one vital element of overall compensation – carried interest, or a share of the profits an investment generates. Certain larger private equity firms pay their analysts carried interest, but most start at associate level, according to separate figures from Preqin. It becomes a bigger deal once you hit director level, with carry hitting close to $1m, and then senior staff can get $3.3m plus.
Not all PE firms pay the same, however. Respondents to WSO’s survey said that The Riverside Company offers the best pay, followed by Fortess Investment Group and then buyout giants Carlyle Group and KKR.