Is pay highest in private equity? Or is pay highest in hedge funds?
It's worth asking given that people exiting investment banking have a tendency to go into one of these two industries and pay typically continues to be one of their motivations.
Both industries clearly pay incredibly well. Research firm Preqin says average compensation for managing directors private equity firms was $1.5m in the US last year, and $963k in Europe. Even better, search firm Glocap puts average total compensation for portfolio managers in hedge funds at $2.4m.
But while hedge funds globally might seem to pay more than private equity firms, this doesn't necessarily apply in Europe. Real time pay data provider Emolument.com has updated its figures for hedge fund pay vs. private equity pay and they suggest that over a working life-cycle, the two industries pay very similarly.
Witness the chart below. Hedge fund professionals (both portfolio managers and analysts) earn more at junior and senior levels than private equity professionals. But private equity professionals earn more in the mid ranks. Assuming (possibly unreasonably) that an equal amount of time is spent as analyst, associate, VP, director and MD, these variations even out. So, yes - hedge fund professionals earn more - but not that much more.
Clearly, pay should never be the primary consideration in a career decision. It's all about the work. So do you want to quit banking to invest in companies away from the financial markets - with a view to rejoining them when it's time to cash out? Or do you want to quit banking to invest in traded securities in a more unfettered environment? Do you want to play with spreadsheets? Or do you want to play with backtests and correlation theories? Ultimately, you'll end up earning a similar amount either way.