The Private Equity Career Path: The Complete Guide
When thinking about the private equity career path, our favorite analogy still applies: a fraternity house.
Yes, we previously compared the investment banking career path to a frat house, and private equity careers are similar in many ways.
But if investment banking is more like a “party/drinking fraternity,” private equity is more like a “business fraternity.”
The hierarchy is a bit flatter, despite seeming similar on the surface, and it’s a more intellectual environment that demands critical thinking and risk assessment in addition to sales skills.
You still have to complete certain rituals to advance, there are still levels, and you receive added benefits as you move up – but the culture and long-term trajectory differ.
In this comprehensive article, we’ll explain the advantages and disadvantages of the private equity career path, including the work, hierarchy, promotions, lifestyle, and salaries and bonuses.
But let’s start with the basics before delving into “fraternal differences”:
The Private Equity Job Description
Private equity firms raise capital from outside investors, called Limited Partners (LP), and then use this capital to buy companies, operate and improve them, and then sell them to realize a return on their investment.
The industry is called “private” equity because the companies that private equity firms invest in are private initially, or become private as a result of the investment.
Imagine that you and your friends went to all your contacts, asked for money, and then decided to become “home flippers” by buying homes, fixing them up, and selling them at higher prices.
You keep some of the profits for yourselves in exchange for operating the business, but you give the majority back to your contacts for providing the bulk of the required money.
That’s what private equity firms do, but on a much larger scale and for companies rather than houses.
The job is part fundraising, part operational management, and part investing.
Why Work in Private Equity?
If you got the “Why private equity?” question in an interview, you’d probably say that you love investing and operations, and you want to build value for companies over the long term.
But in real life, most people are drawn to private equity because it offers high compensation, somewhat better hours than investment banking, and more interesting work.
Some people also enjoy the excitement of working on large deals and interacting with “the best and brightest,” as well as understanding company operations in more depth.
Unlike investment banking, exit opportunities are not a major reason to go into private equity because PE itself is viewed as an exit opportunity.
Private Equity Skills and Career Requirements
The private equity career path attracts people who are:
- Competitive, high achievers who are willing to work long, grinding hours.
- Extremely attentive to detail.
- Interested in deals rather than simply following the markets or investing in public companies or other assets.
- Interested in investing and operations and using critical thinking to evaluate companies rather than selling or being an agent.
- Interested in long-term projects such as building a portfolio company over many years, and are also open to non-deal work, such as company monitoring and fundraising.
At smaller firms, more Associates come from middle-market and even boutique banks; some management consultants and Big 4 and corporate development professionals also get in.
Firms have been hiring more students directly out of undergraduate, so there are now quite a few “Private Equity Analyst” positions in the industry as well.
Getting into private equity directly after an MBA is nearly impossible unless you’ve done investment banking or private equity before the MBA.
You could complete the MBA, use it to win a full-time investment banking job, and then recruit for private equity roles…
…but that is significantly more difficult than breaking in pre-MBA from investment banking, and it’s not an ideal path (see: more on investment banking associate exit opportunities).
To get into private equity, you’ll need:
- A sequence of highly relevant work experience, including transactions and financial modeling.
- Top academic credentials (grades, test scores, and university reputation);
- A lot of networking and interview preparation;
- Something “interesting” that makes you appear to be a human rather than a robot;
- The ability to think critically about companies and investments rather than just “selling” them.
- A strong cultural fit with the firm – PE firms are much smaller than banks, so “fit” and soft skills are even more important.
For more, see our comprehensive guide on how to get into private equity.
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If you do not have the skills and work experience mentioned above, your best bet is to gain transaction experience in corporate development at a normal company or in M&A at a Big 4 firm and use that to move in.
Or, join a PE firm’s portfolio company, work on the operational side, and eventually move to the firm itself.
Do not bother with non-deal-related jobs such as equity research, or back or middle office roles.
The CFA is the only certification that means anything at all in PE; it is marginally helpful, but it plays a small role next to everything above.
The Private Equity Career Path
The private equity career path and hierarchy vary from firm to firm, but here’s a representative example:
- Analyst – Logistical Monkey.
- Associate (Pre-MBA) – Deal and Analytical Monkey.
- Senior Associate – More Experienced Monkey.
- Vice President – Manager of Deals.
- Director or Principal – Generator and Negotiator of Deals.
- Managing Director or Partner – Rainmaker, Fundraiser, and Chief Representative.
And here’s a flow-chart summary:
We’ll look at each level in detail below.
We are not going to address the exit opportunities and hours/lifestyle in each level because PE is usually the end goal, and the hours don’t necessarily change that much as you move up – expect 60-70 per week at smaller firms and 80+ at mega-funds.
The key differences at each level of the private equity career path lie in the work tasks, promotion time, and compensation.
Also, note that all the compensation figures below refer to figures in North America – they will be lower, sometimes significantly lower, in regions such as Europe and Asia-Pacific.
Private Equity Analyst Job Description
Private Equity Analysts are hired directly out of undergrad without previous full-time experience.
They work on the same types of tasks as Associates: deal sourcing, reviewing potential investments, monitoring portfolio companies, and fundraising, but they complete fewer projects independently from start to finish.
For example, an Associate working on a deal might build the entire financial model and coordinate the due diligence process, including speaking with lawyers, auditors, consultants, and other parties to get answers.
But an Analyst on the same deal might help only with specific tasks such as setting up conference calls, sifting through data, and assisting the Associate with certain research or documents.
Age Range: These roles are only for students who just finished undergrad, and they only last for a few years, so we’ll say 22-25.
Private Equity Analyst Salary + Bonus: You’ll almost certainly earn less than an IB Analyst in terms of total compensation; your salary + bonus will likely be in the $100K – $150K range, with the bulk coming from your base salary.
Carry, i.e., a share in the profits from investments, is unlikely-to-borderline-impossible for Analysts, so don’t even think about it.
Promotion Time: Expect 2-3 years for a promotion to Associate, if your firm promotes Analysts (it varies widely).
Private Equity Associate Job Description
Private Equity Associates must be able to lead deal processes from start to finish without step-by-step instructions.
They spend their time on sourcing – generating new deal ideas – as well as financial modeling and due diligence for active deals, portfolio company monitoring, and even some fundraising.
The PE Associate role is an evolution of the IB Analyst role, so you still spend a lot of time in Excel, PowerPoint, and data rooms – but you have more responsibility and must act more independently in those tasks.
A typical day for a PE Associate might include the following:
- Meet with their boss or other team members to discuss ongoing deals and potential ideas.
- Build a financial model for an active deal or review and tweak an existing one.
- Conduct a conference call with the owners of a private company that might be interested in selling to your firm.
- Review customer contracts in the data room for an active deal.
- Review a portfolio company’s quarterly financial results and speak with the CFO about them.
- Assist with the fundraising process by setting up webinars with potential new Limited Partners (LPs).
- Complete administrative work such as editing NDAs or conducting market research.
Age Range: You need several years of IB or a closely related field to get in, so we’ll say 24-28.
Private Equity Associate Salary + Bonus: Your salary + bonus will probably be in the $150K to $300K range, depending on the size of the firm and your performance.
Some of the large funds may pay more than $300K, but we’re using the 25th percentile to 75th percentile range as a reference here.
Carry is still quite unlikely unless the firm is brand new and you’re an early hire.
Promotion Time: Expect 2-3 years for a promotion to Senior Associate.
Private Equity Associate vs Analyst
As discussed above, the Associate tends to be more involved with the entire deal process from start to finish, while the Analyst might only help with specific tasks the Associate can’t get to.
The Associate is more of a “Coordinator,” and the Analyst is more of an “Assistant.”
Analysts are hired directly out of undergrad, while Associates join following several years in investment banking or a related field, such as management consulting.
Associates also earn more and are more likely to stay at the firm for the long term – if there’s a path to advancement there.
If there is no direct promotion path, Associates might complete an MBA or move into a different industry, such as hedge funds, corporate development, or strategy at a tech company.
Private Equity Senior Associate Job Description
“Senior Associate” and “Associate” are nearly the same.
The main difference is that “Senior Associate” is used to denote:
- An Associate who has been at the firm for a few years and been promoted directly, or
- An Associate who worked for a few years, went to business school, and then returned to the firm.
The work is not much different, but Senior Associates move closer to the VP-level, where they have more “manager” responsibilities.
Age Range: We’ll say 26-32 because at the minimum, you must have completed two years of IB or PE Analyst work, followed by two years of PE Associate work.
Some Senior Associates may be in their low 30s because they may have switched industries after undergrad, broken into IB, switched into PE, and then completed an MBA program.
Private Equity Senior Associate Salary + Bonus: These increase incrementally over the Associate level, but not dramatically so. The range might be more like $250K to $400K depending on the firm size, region, performance, etc.
At this level, a small amount of carry is more plausible. You’re not going to become a multimillionaire and retire at age 35, but it might boost your bonus a bit.
Promotion Time: You’ll need 2-3 years to reach the next level of Vice President.
It’s quite difficult to get promoted to VP because the nature of the job changes a fair amount at that level.
Many Associates and Senior Associates at larger PE firms realize there is no great path to VP there, so they end up going downmarket to advance.
Private Equity Vice President (VP) Job Description
In private equity, Vice Presidents are “deal managers.”
They need to convince the senior team members – Principals and Managing Directors – that they know what they’re doing so that the senior staff trusts them to manage deals.
VPs also lead and mentor others on the team, work more directly with clients, vet transactions, and lead due diligence and negotiations.
The VP role may sound similar to the Associate role, but it is very, very different.
Soft skills start to matter far more at the VP level, and you need to be a good talker and presenter to advance.
If you can prevent an important deal negotiation from falling through with some smooth talk on a conference call, that matters 100x more than being an Excel/VBA guru.
Very few, if any, professionals make it to this level with poor communication skills, but plenty of people with mediocre technical skills make it – as long as they talk and present well.
Age Range: The likely range here is 30-35 because you must have already spent at least ~4 years in PE at the Associate levels, you probably did something before that, and you might have gone to business school as well.
Private Equity Vice President Salary + Bonus: The likely range here is $350K to $500K, with about half in base salary and half in the year-end bonus.
Carry becomes increasingly important at this level, which could boost your bonus a fair amount – but you probably won’t see its full effects unless you stay at the firm long-term.
Promotion Time: You’ll probably need 3-4 years to advance to the Principal level.
Private Equity Principal or Director Job Description
You can think of Principals as “Partners in training.”
They have a lot of decision-making power, but they don’t have the same type of ownership in the partnership that the MDs/Partners do.
Principals leave most of the deal process management to the VPs and Associates and get involved when deals are nearing the finish line, and critical negotiations are required.
They also spend more time on sourcing deals and fundraising, and they are often the ones who convince business owners to consider a sale in the first place.
Principals also act as the go-between between the deal team and the MDs/Partners.
Age Range: It’s 33-39 here because of all the previous experience you need.
Private Equity Principal Salary + Bonus: Compensation reports indicate highly variable numbers, but the 25th to 75th percentile is in the $450K to $700K range.
Carry becomes even more important at this level and may substantially increase total compensation.
Promotion Time: It normally takes 3-4 years to reach the next level of Managing Director or Partner.
Private Equity Managing Director (MD) or Partner Job Description
Partners or Managing Directors are the king of the hill.
They spend their time on fundraising, deal origination, and “fund representation,” which could mean attending events and conferences, speaking with LPs, and doing everything required to boost the firm’s brand name and reputation.
They still spend some time reviewing deals, but they are less involved than the Principals unless it’s an extremely important deal.
Unlike the other roles here, this one depends 100% on human relationships – not Excel, VBA, Python, or small details in documents.
That makes it the toughest job because it’s much harder to address LPs’ concerns and convince them to invest in your new fund than it is to write an Excel formula or lead a deal process.
Oh, and one more thing: MDs and Partners must also invest a significant amount of their personal wealth into the fund to ensure they have “skin in the game.”
So… if you’re a risk-averse person, this is probably not the role for you.
Age Range: You’re unlikely to reach this level before your mid-to-late 30s, so we’ll say 36+. But that’s just the minimum – most Partners are likely in their 40s or beyond.
Many MDs and Partners stay in private equity indefinitely because there’s no reason to leave unless they’re forced out or the firm collapses.
Private Equity Managing Director Salary + Bonus: Compensation here is highly variable, but a reasonable range is $700K to $2 million, with slightly less than half from the base salary.
“Senior Partners” will earn more if the firm makes the distinction.
But carry is the key driver at this level and could increase total compensation by a multiple of the range above.
For example, the senior professionals at firms like Blackstone could earn tens or hundreds of millions per year (!), largely due to carry.
However, you should keep your expectations in check: the average case for total compensation at mid-sized and smaller firms is in the low millions if you make it this far.
Promotion Time: N/A – this is the top of the ladder.
Careers Beyond the MD/Partner Level: Senior Managing Partner, COO, CEO, and More
Some firms distinguish between normal Partners and “Senior” ones; Senior Partners own a higher percentage of the partnership, earn more carry, and have more decision-making power.
At the private equity mega-funds – the likes of Carlyle, Blackstone, and KKR – there are also C-level executive positions in the hierarchy.
There is no set path for advancing into these roles, so it depends on timing, performance, and who’s planning to retire.
We’re not covering them here because there’s little tangible information about these roles, and most students and professionals won’t even make it midway up the ladder.
Private Equity Careers Pros and Cons
Summing up everything above, here’s how you can think about the trade-offs of the private equity career path:
Benefits / Advantages:
- High salaries and bonuses at all levels, with the potential for carry to boost senior-level compensation far beyond what investment bankers earn.
- More interesting work than investment banking and other sell-side roles.
- Somewhat better hours than investment banking, at least at mid-sized and smaller funds, and a more predictable schedule… if you’re not working on a major deal.
- Direct exposure to different companies, industries, and management teams, and significant responsibility even at the junior levels.
- Firms are small, so advancement is directly linked to your performance; office politics is less of a factor than at large banks.
- The industry is unlikely to be disrupted by technology because it’s a relationship-based negotiation and sales role at the top levels.
Drawbacks / Disadvantages:
- Still fairly long hours and an intense work environment, and significant travel may be required, especially as you advance.
- There may not be a clear path to advancement at your firm, depending on the firm’s size and policies and your level. And even if there is a path, advancement can be challenging because Partners rarely get “burned out” and leave.
- You could end up doing a lot of cold calling, research, or portfolio company monitoring rather than deal execution – and even if you do work on deals, you’ll be lucky to close ~1 major transaction per year.
- You won’t gain the same network or structured training that you would at a large bank because PE firms are so much smaller.
- You will have to contribute a significant portion of your net worth at the top levels, which is fine if the fund performs well… but a big issue if it struggles.
- It’s extremely tough to get into the industry if you get a late start, you’re a career changer, or you did not attend a top university and then do investment banking.
So, is private equity right for you?
Rather than assuming that it is because “everyone” does the investment-banking-to-private-equity-path, you should consider these factors and be honest about what you’re looking for in a long-term career.
If you want more of a “business frat” than a party/drinking frat, then a private equity career could deliver.
But if you don’t want to be in the frat house at all, you’ll need to consider strategic alternatives.
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