The general school of thought is that private equity is the most difficult sector to break in to in all of financial services. While this may still be true, the recent explosion of new entrants into the U.S. market and the continued growth of existing funds have created newfound competition for blue-chip recruits, leading to a significant uptick in compensation over the last two years.
Pay packages for juniors began ballooning in 2017 as more international private equity firms expanded into the U.S. looking to take advantage of better market conditions, according to a new compensation report from search firm Heidrick & Struggles. Private equity associates saw their cash compensation – base plus bonus – grow by nearly 15% in 2017. Vice presidents saw more than a 16% bump. And this year should be even better. Base salaries for associates and VPs increased by 6.8% and 6.5%, respectively, in 2018. If year-end bonuses follow suit, junior and mid-level private equity employees could see a 30% increase in cash compensation over just two years, and that’s not including what they’ll eventually take home in the form of carried interest.
Meanwhile, senior PE professionals are doing just fine in their own right. Managing directors and managing partners saw a 5.5% and 8.6% increase in total cash compensation in 2017, respectively. This year, managing partners witnessed the largest salary increase of anyone – 13.6% – raising their average base to $786k.
Heidrick & Struggles pins the recent jump in compensation to the hyper-competitive U.S. buyout market, which has resulted in the most active hiring spree that has ever existed in private markets. Current private equity hiring is being powered by the growing need for junior recruits, an increase of VPs willing to jump to other firms, and the high demand for seasoned investment professionals with specialized business development expertise, according to the report.
The chart below contains mean base salaries for all five titles for 2018 along with the average bonus totals from last year. But with current market conditions, these totals will soon be dwarfed by what PE professionals will take home in the form of carried interest.
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