For many students, Private Equity is the promised land. The career paradise they may be able to reach once they’ve “paid their dues” in the harsh battleground of investment banking.
The appealing promise of higher pay, better hours, more intellectually stimulating work, makes PE the most obvious “exit opportunity” after a few years in investment banking.
That being said, many young professionals have this opinion about PE just because they heard all those good things from other people.
But since they’ve never actually worked in the industry, they don’t really know if all these glamorous aspects are true or not.
If you’re considering a career in Private Equity, you may ask yourself: Is PE really better than IB? How much money will I make in PE? Is that a good move to go into PE straight out of the uni? We’ll address these questions in this article.
The big question that we get very frequently from our readers is: instead of working in IB, can I and should I go straight into PE?
Usually, this question comes with the following underlying motivations:
All these reasons have some elements of truth to them. But people who believe that often fail to understand this: in order to get access to PE spots that indeed provide all these benefits, you’ll need at least 2-3 years of deal-related IB experience in the vast majority of cases.
Not all PE opportunities are created equal. If you’re joining as an analyst at a $200m fund straight out of uni, don’t expect to get paid $350k and enjoy the intellectually stimulating responsibilities that you have at Blackstone after 3 years of first-class M&A XP at Goldman.
It’s not a cliche: if you want top-tier jobs in PE, you’ll have to “pay your dues”. And these dues are to be paid by working for several years in IB.
Not just because it’s customary to do so. But because you need to have a comprehensive understanding of how deals work in order to be a functional and competent Private Equity professional.
This deal-related experience can only be gained by working a few years in IB, ideally in M&A or Leveraged Finance.
There are still exceptional cases where it may actually be a good idea to go into PE right out of uni, but in most cases, it’s a much smarter move to start in IB to build the skill set and credibility necessary to get access to top-tier PE spots.
You may have heard already that IB is part of the “sell-side”, and PE is part of the “buy-side”. When you work in investment banking, your job is to represent companies to “sell” them better, that is, put them into a favorable light to help them achieve what they want to achieve.
For example, if you’re advising a company to find a potential strategic buyer, you will likely create materials (e.g., PPT presentations, valuation models) that show that this company is an attractive target. Just like the pro marketer is good at selling a product, investment bankers are good at “selling” companies.
On the other hand, when you work in PE, your job is to “sell” or “market” companies: it’s to buy them. As a PE professional, you will analyze potential companies to invest in, take an active part in helping them grow, before selling them at a profit a few years later.
In PE, you’re not concerned with “marketing” companies, you’re focussed on selecting companies that provide the best possible long-term returns for your portfolio.
Due to this fundamental difference between the two jobs, it is to be expected that the daily tasks are different.
Examples of tasks you’ll do in investment banking:
Examples of tasks you’ll do in private equity:
For some reason, many young graduates seem to think that the moment they step foot into the promised land of private equity, they’ll finally be able to sleep 10 hours per night, leave the desk at 5, and play golf twice a week with their father in law.
Unfortunately, it doesn’t work that way. It’s true that working hours are less brutal than in IB, but don’t expect a 9-to-5 job either. On average, you can expect to work 55-70 hours per week, which obviously varies by firm and location. If you’re working at PE mega-funds (e.g., Carlyle, TPG, KKR), hours can be just as brutal as in IB, if not worse.
The key advantage of PE is that the workflow tends to be more predictable, less chaotic in nature. That means less stress, more flexibility, and an overall better work-life balance.
Just like IB, people don’t want to get into PE for humanitarian reasons. Money is one of the primary motivators at play here. When young graduates hear about PE, they often think that salaries are significantly higher than in banking.
People making $300k-$400k before they hit 30. But what these numbers don’t reveal is that PE professionals are on average older, more experienced, and hence benefit from greater compensation. In other words, you don’t make $300k out of uni if you start at a top PE firm like Blackstone.
You may make $300k after a few years of IB experience, and then make the switch to PE. If you start a PE job right after uni, numbers are much lower, pretty much on par with IB comp in fact (even lower in some cases, especially at analyst level).
That being said, it is true that the pay you can have in PE after several years of experience is substantially higher than in IB – sometimes dozens of times higher. This is mainly due to the unique compensation structure that prevails in PE: senior PE professionals (principals and above) perceive carried interest based on the success of the deals they work on.
It’s a long-term form of compensation that is only gained by staying at the same firm, and which can greatly vary depending on the success of the deals. In theory, it means there is unlimited upside in compensation. PE partners can make dozens of millions if they get carried interest on a multi-billion dollar deal. But you have to be aware that reaching that level of seniority takes years, if not decades, and not everyone makes it to this level.
So to summarize: the pay ceiling is indeed higher in private equity, but the difference in compensation at junior level is not significant, as you don’t get access to carried interest (where the “real money” is made) at this stage.
Aurelian Tran is the founder of Alpha Lane and an ex-Goldman Sachs analyst who has spent 4+ years working in the investment banking industry.
He founded Alpha Lane to help students and young professionals achieve their highest professional ambitions, by securing offers at top-tier financial institutions.
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