Private equity pay is less perky

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Private equity is the promised land for many junior bankers. But pay is being spread more thinly as the number working in the industry rises.

The Australian market for private equity professionals remains small

but has shown "dramatic growth" in the last three to four years, says

Victoria Biggs, a consultant with Jon Michel Executive Search.

Biggs estimates that the entire venture capital/private equity

industry employs "400 to 500 people" in this country - which means

about 20 to 25 new hires a year, up from just three to four in 2003.

Base salaries in private equity are comparable to those in investment

banking, but the bonus side is "generally lighter", says Biggs. "Where an

investment banker with five years' experience might be on 1.5 times

your base as a bonus, in private equity that could be somewhere between

50% and 100%."

The attraction that makes the difference is the lucrative carried

interest, or 'carry'. This is the proportion of profits that a private

equity fund's investment team receives after a certain internal rate of

return (IRR) has been reached and the investors are paid out, and it

can be worth several millions.

But as teams become larger, Biggs cautions that carry is being

"shared between more mouths".

"There might be 15 professionals on a team, and clearly the carry can't

go as far as it did when there were only three or four. As the

industry grows, the amount of carry that's available to the people in

the team can decrease," says Biggs.

Lynne Muirhead, a consultant at Johnson Executive Search, says that

candidates looking to move into private equity have to look carefully

at not only the size of a firm, but where it is in its investment


"If you were going into a large firm, there's a chance that it will

have the opportunity to raise more funds on an ongoing basis, which

gives you more opportunity to get into a carry scheme and be attributed

points quicker.

"But if you're going into a small firm that is in the advanced stage

of the investment cycle - say, three years into a fund with a five-year

payout - it could be a couple of years before you get any meaningful

carry attributed to you. Depending on the market, the bigger firms have

greater capacity to raise money and potentially have cycles starting

all the time, and candidates have to keep that in mind," says Muirhead.

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