The Private Equity Partner: Is It Good to Be King?
While there’s little information online about mid-level positions in the finance industry, there’s even less information about the top positions, such as Private Equity Partners.
One reason is that the people who have these jobs do not spend time writing about them online – unless they retire, get bored, and decide to become e-celebrities.
But another factor is an implicit assumption in many careers: if Field X is lucrative and appealing, then the Top Position in Field X must also be lucrative and appealing.
While the “lucrative” part is true in private equity, the “appealing” part is subjective.
If you think the Partner role is a low-stress job where you get to sip mojitos on the beach while saying yes or no to mermaids handing you investment proposals, you should think again:
The Private Equity Partner Job Description
If you’re not already familiar with private equity and the PE career path, you should start by reading those articles.
The Private Equity Partner is the highest-level position in the industry (most of the time – see the next section).
Unlike Analysts and Associates, Partners do not spend time in Excel or PowerPoint, and they do not sift through data rooms looking for small details and numbers to crunch.
And unlike VPs and Principals, they are much less involved in deal executions and negotiations.
Instead, Partners spend most of their time on the following tasks:
- Fundraising and LP Relations – They speak with the firm’s Limited Partners (LPs), answer their questions, convince them to invest more capital, and find investors when raising new funds.
- Deal Sourcing – Similar to junior employees, Partners also spend time finding new companies to invest in – but they don’t cold call or cold email to do so. Instead, they rely on their existing professional networks for referrals.
- Firm Representation and Team-Building – Partners represent the firm to media outlets in press interviews and at conferences and events, and they grow the firm by recruiting new talent and making the final decisions on all candidates.
- Final Investment Decisions – Finally, Partners do spend some time reviewing deals, but typically only when they’re in the final stages and a definitive yes/no decision is required. Partners may also step into deal negotiations if a stumbling block arises and no one else can resolve it.
The biggest challenges in this position are:
- Convincing Other People to Part with Money and Ownership – Persuading a pension fund to invest $50 million or asking a family-business owner to sell their entire stake are in a different league of difficulty than other sales tasks.
- Not Knowing If You’ve Made the Right Decision for a Long Time – With public markets investing, you can tell if you’re right or wrong within weeks or months; in private equity, you might not get the results of your investment decisions for years or even a decade.
- The Risk of Losing Significant Amounts of Your Own Wealth – All Partners are required to invest a significant amount of their wealth into their funds to have “skin in the game.” This can be anywhere from nerve-wracking to heart-attack-inducing if some deals do not perform well.
Partner vs. Managing Director vs. Managing Partner vs. Senior Partner
These titles effectively refer to the same position, but there may be slight differences depending on the firm and group.
For example, some PE firms use “Managing Director” for the credit team but “Partner” for the equity investing group.
The “Managing Partner” and “Senior Partner” jobs are more senior than normal Partners and MDs, which means more carried interest.
Professionals at these levels are closer to the Founder level, so they could potentially earn a multiple of the carried interest earned by normal Partners and MDs.
A Day in the Life of a Private Equity Partner
If you’re working at a middle-market firm with several billion dollars under management, an average weekday might look like this:
8 AM – 9 AM: Arrive at the office, check emails, and meet with the other Partners to discuss marketing efforts for an upcoming fund. You ask a Principal to listen in as well.
9 AM – 10 AM: Do a few interviews with media outlets to promote your new fund, the firm, and recent transactions you’ve worked on.
10 AM – 11 AM: You interview two candidates who are applying for Principal roles at your firm. One comes from a larger firm, the other is from a smaller firm, and the Partners are split about which one to hire.
You cast the deciding vote on the second candidate because you think his skill set is a better match.
11 AM – 12 PM: Join a conference call with prospective new Limited Partners to discuss your new fund. It will be twice as big as your current fund, and they are skeptical you can do it without also doubling your headcount.
They also want each Partner to contribute more money, especially since your current fund still hasn’t had many exits.
12 PM – 1 PM: Head to lunch with another Partner and a new VP and Associate as a “team-building” exercise.
1 PM – 3 PM: Meet with the LPs of your current fund to discuss your performance and upcoming deals; you pull in a Principal in case they start asking detailed questions.
The LPs are skeptical about the high unrealized gains you’re reporting, and they want more information about your portfolio company valuations.
3 PM – 4 PM: Review a few deals that your team is working on and highlight the key questions they need to answer before the investment committee will say yes or no.
Their models look fine, but the industry/market data to back up key assumptions is lacking.
4 PM – 5 PM: Speak with the CEO of a company your firm is trying to acquire. He runs a closely held family business and is reluctant to give up a majority stake in his company, so he’s having second thoughts about the deal.
The Principal has already tried to convince him, to no avail, so now it’s your turn.
5 PM – 6 PM: Meet with the Partners to discuss one deal that isn’t going well – the company just defaulted on a scheduled interest payment, and it may have to declare bankruptcy. You discuss the options, such as restructuring and selling off non-core assets.
6 PM – 7 PM: Meet with your team to review your comments and questions on their deal proposals (from earlier in the day) and suggest revisions before taking them before the investment committee.
7 PM – 8 PM: Catch up on some of the emails you’ve missed today; you find a few promising leads from your contacts at venture capital and growth equity firms.
These firms invest in companies at earlier stages and then pass them along to you once they mature. You note the details and plan to contact some of the best ones tomorrow.
This day was around 12 hours, and it was moderately busy but not “panic mode.”
The biggest difference at this level is that the day is split into many 1-hour meetings with different internal and external parties.
In other words, the Partner follows the manager’s schedule – not the maker’s schedule.
Private Equity Partner Lifestyle and Hours
As with the other levels in the PE hierarchy, the lifestyle and hours vary tremendously based on the fund size, with longer hours at the mega-funds (KKR, Blackstone, Apollo, etc.).
However, even at these large funds, the hours tend to improve slightly when you reach this level.
For example, most Partners at these firms are probably not working 80+ hours per week; the average might be closer to 60-70, with less weekend and holiday work as well.
And at mid-sized and smaller funds, the average weekly hours might be in the 50-60 range.
But if a deal heats up or there’s some other disaster, the weekly hours could easily spike to the 80+ range.
Private Equity Partner Salary, Bonus, and Carried Interest Levels
In the previous articles on the private equity career path and private equity salaries, we quoted a base salary + bonus range of $700K to $2 million USD for Partners.
This compensation range is wide because so much depends on the fund size, your seniority, and the fund’s performance.
At the low end, such as at a brand-new fund with a few hundred million under management, a Partner might earn in the $500K to $1 million range for base salary + year-end bonus.
As fund sizes approach several billion under management, Partners move closer to an average of $1-2 million in base salary + bonus.
As fund sizes increase beyond that, average compensation does not necessarily increase.
Even into the $10-20 billion AUM range, Partners often earn about the same amount because the headcount and expenses also increase, and Senior/Managing Partners and the Co-Founders earn a higher percentage.
The real money comes from carried interest, which could potentially multiply these annual compensation figures.
It’s lucrative because Partners might contribute only 1-5% of the fund’s capital, but they could claim 20% of its profits (assuming it performs well).
A “normal Partner” or Managing Director might receive 0.3% to 0.7% of the carry pool for a $1-10 billion fund.
If the fund performs well, that could add up to a few million per year in extra compensation.
If you want to see the full math and several examples for carried interest, please see the private equity salary article.
How to Become a Partner
Most people who become Partners do so by starting in private equity at the junior levels and rising through the ranks.
Winning a promotion to the Partner level requires a combination of politics, performance, and luck.
Current Partners rarely leave willingly because the job is lucrative, and carried interest effectively “locks them in” – even if they’re bored or don’t particularly like it anymore.
To have the highest odds of a promotion, you need to be at the right firm under the right conditions:
- An existing Partner is leaving, retiring, or being forced out.
- The firm is expanding by launching a new fund or moving into a new industry, geography, or strategy that will require a new team.
- A “coup” is happening, and one set of Partners is being forced out by another set (or there’s another similar “restructuring”).
Besides these conditions, performance, of course, factors in because you will get promoted only if you have proven yourself adept at sourcing and executing deals.
Your long-term track record matters a lot since you might have worked at the firm for 10+ years by this point.
In addition to internal advancement at the same firm, some people also move “down-market” to win this promotion.
For example, maybe they start at a mega-fund and then switch to a middle-market fund because it’s less crowded at the top.
Others even attempt to start their own private equity firms, but this strategy is probably not feasible in most markets (you normally need to be at the Partner level to start a fund).
It’s rare to become a Private Equity Partner from outside the industry, but it happens sometimes.
You often see this with former high-level government officials and politicians and with “celebrities” in industries like music and entertainment (see: Bono and Elevation Partners).
Corporate law partners and senior investment bankers could also move into private equity at the senior levels, depending on their networks.
Company executives, such as CEOs and COOs, are more likely to become “Operating Partners” if they move into the industry.
It’s more feasible to move into private equity as an outsider at the senior level than at the mid-level because much of the job comes down to your network.
For example, Bono does not know how to build a DCF model or even a simple LBO model, and I doubt that he ever sat in a data room analyzing deal documents or the finer points of a definitive agreement.
However, he does have a huge amount of star power, which he leveraged to raise funds, build his firm’s reputation, and even source deals when Elevation Partners was active.
When a potential deal arrived, the more technical Partners (formerly of Silver Lake) and the junior employees did the analytical work.
Is a Private Equity Partner Role in Your Future?
The pros and cons of this job are the same as the pros and cons of the private equity industry in general.
I’ve already written about my personal views in the article on private equity strategies, so I’m not going to detail them here yet again.
In short, I doubt that the industry will become more lucrative than it already is.
It will either stay about the same or decline – and compensation is likely to fall in the long term, even if it’s still at a premium to other jobs.
For the Partner role, specifically, I would emphasize:
- You need to be in it for the long term (10-15+ years) – If you leave early, you could lose half (or more) of your total compensation.
- The job does entail financial risk, despite the high compensation – You need to contribute your own money to each fund, which means there is more downside risk than in other high-paying jobs without this requirement.
The Partner role is far from an “easy job,” but you could argue that it’s less stressful than being an investment banking Managing Director or a hedge fund Portfolio Manager because there’s less of a short-term performance focus.
And while the money is great, you need to find some other satisfaction to reach this level because you won’t be able to sustain the career for 10-15+ years if you’re only in it for the money and dislike everything else.
So, it is good to be king.
But like any king, you’ll always be on the lookout for invading armies, territorial disputes, crises in individual cities, and peasant rebellions in the lower ranks.
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Nice article. But I have a question: how does the claim that hedge fund and private equity jobs are comparable in terms of pay in the long run reconcile with the fact that PM at hedge funds seem to pull in “only” 1m per year, and not several millions as partners in PE?
In other words, do hedge funds, and especially quant hedge funds (which are the ones I am interested in), pay less than PE at senior levels if we take carried interests into account?
I think you might be taking the approximate pay figures quoted in these articles too literally. These are always order-of-magnitude ranges, not exact amounts. We can say that the average HF PM and average PE MD both earn, order of magnitude, closer to $1 million than they do to $10 million or $100 million.
There are hedge fund PMs who earn tens of millions or hundreds of millions or even billions per year, but the average is far lower because there are thousands of much smaller funds out there with less money to distribute. The average MD in PE and the average HF PM probably earn in about the same range (low millions per year) once everything is factored in, but there’s far more variance with hedge funds because they depend more on year-to-year performance.
Also, I would not suggest basing your career plans on what senior-level positions in these industries pay. Compensation changes over time, industries change, and you first need to figure out if you can get in and perform well on the job before thinking about these issues.