by Brian DeChesare Comments (12)

The Private Equity Principal: Full Career Guide

Private Equity Principal

Given the constant obsession with private equity, you might expect more articles and online discussions about the long-term career path.

For example, what does it take to become a Private Equity Principal or Vice President? What about a Partner or Managing Director?

And are the work/life trade-offs required to reach these levels “worth it?”

But if you spend approximately 5 seconds searching, you’ll figure out that virtually all articles, videos, and tutorials about the industry focus on junior-level roles (Analysts and Associates) and how to win them.

That’s because content creators are following the money, and in most markets, ~99% of the money is spent by beginners.

Tons of students want to “break into” investment banking or private equity, but only a tiny percentage will have the skills, self-sacrifice, and desire necessary to move up the ladder.

But since I enjoy creating content that has no practical benefit, I thought it would be fun to cover the more senior positions in the industry, starting with the Principal role:

The Private Equity Principal Job Description

This article assumes that you’re already familiar with the private equity industry and the PE career path; if not, please read the linked articles to get the basics.

Private Equity Principals are midway up the career ladder, and you can view them as “Partners in training.”

Unlike Analysts and Associates, they spend little time crunching numbers, drafting memos, or reviewing data rooms.

The Principal and Vice President roles have some overlap, but VPs act more like “project managers for deal execution,” while Principals spend more time on deal sourcing, intervening in critical negotiations, and winning buy-in from the Partners.

Also, since it is assumed that Principals will stay at the firm for the long term, they tend to spend more time working with portfolio companies.

As a Principal, you may also become more of an industry specialist.

Analysts, Associates, and even VPs often act as industry generalists, but starting at the Principal level, specialization becomes more common and is almost universal for MDs and Partners.

The Private Equity Principal vs. the Vice President

At some firms, VPs and Principals effectively have the same job; at others, there are modest distinctions but still significant overlap.

To tell if there’s a difference, look at how the firm staffs deals.

If the firm usually puts a VP and a Principal on deals, they’re different roles; if not, the roles will be more similar.

The main differences, if they exist, are:

  • Pay: Principals earn more than VPs in base salary, bonus, and carried interest (the last one is especially significant).
  • Work: VPs are responsible mostly for deal execution (e.g., due diligence, financing, memo writing, managing the Analysts and Associates, etc.). Principals do some of that as well, but they spend more generating deals, explaining deals to Partners to win their buy-in, coming up with unique ways to generate value, and negotiating important aspects of deals that are about to close, such as the definitive agreement.
  • Credibility / Expectations: As a Principal, you’re viewed as more credible at the firm, so you may get to participate in fundraising, represent the firm at events, and attend Board meetings in place of a Partner.

A Day in the Life: What Does a Private Equity Principal Do?

An average day depends heavily on the size of your fund and how it staffs deal teams.

But if you’re working at a middle-market (MM) firm with, say, $1-3 billion under management, an average weekday might look like this:

8 AM – 9 AM: Arrive at the office, check the news, read overnight emails, and start discussing marketing for an upcoming fund with one of the Partners.

9 AM – 10 AM: You do a few calls with your banker contacts to ask about what they’re seeing in the market lately (e.g., notable sellers and acquisition interest by big companies). In part, you’re looking for new deal ideas, but you’re also trying to find unique angles on existing deals and portfolio companies.

10 AM – 12 PM: One deal that’s close to the finish line – an acquisition of a mid-sized family-held business – is about to blow up because the Board won’t agree to certain terms in the purchase agreement.

They object to the non-compete agreements for executives and how their compensation is shifting to deferred bonuses, so you join a long call and attempt to compromise with them. There’s no immediate resolution, but you agree to speak again tomorrow.

12 PM – 1 PM: Head to lunch with a corporate lawyer contact and get referrals to a few companies that might be interested in outside investment or acquisition.

1 PM – 3 PM: The Partners pull you into a meeting with some of their Limited Partners (LPs) to discuss recent performance, deals in the pipeline, and the plans for your new fund.

The Partners do most of the talking, but you’re there to back them up with numbers when the LPs start digging in to ask detailed questions.

3 PM – 5 PM: Meet with the executives of a portfolio company and the management team of a smaller company they are trying to acquire.

The smaller company is skeptical of the post-deal integration process because they’ve heard negative comments about private equity, so you spend time convincing them that you’re not going to fire everyone.

5 PM – 6 PM: You head back to the office and have some “downtime,” so you review a memo that the VPs and Associates are working on and leave comments on a few pages.

6 PM – 8 PM: The Partners summon you in to explain the status of recent deals, including the two you worked to negotiate today.

You’re convinced that the first company will become a solid add-on acquisition platform in the professional services space, but the Partners are skeptical of the market.

You spend time making your best case for it and agree to send them some industry research.

8 PM – 9 PM: Meet with your VP and Associate and go over the changes you want them to make to a few deal memos.

This was a moderately busy day of around 12 or 13 working hours, depending on what you count as work.

There are a few active deals, including one near the finish line, but you were not in “panic mode” at any point.

It’s a good representation of the Principal’s job: many meetings and negotiations, deal sourcing, firm representation, and making a case for or against deals to the Partners.

Private Equity Principal Lifestyle and Hours

As with Analyst and Associate roles, the hours and lifestyle vary significantly based on firm size.

At mega-funds like KKR, Blackstone, and Apollo, Principals often work 80+ hours per week, which translates into something like:

  • Monday – Thursday: 8 AM to midnight
  • Friday: 8 AM to 8 PM
  • Weekend: Another 5-10 hours of work throughout

And if a deal heats up, those hours will get worse.

The job also gets substantially more stressful because you’re judged based on your results.

Maybe you followed all the right steps, did exhaustive due diligence, and presented the most detailed financial model ever…

…but if that deal loses money for the firm, too bad! No one cares about all that work – just the result.

At middle-market, upper-middle-market, and boutique firms, Principals might work an average of 50-60 hours per week (again, with longer hours when deals heat up).

That said, work/life balance varies significantly at firms in this size range.

You’ll see everything from mega-fund-like hours to places where people have outside lives and interests, so do your due diligence before joining.

Private Equity Principal Salary, Bonus, and Carried Interest

On average, Principals at mid-sized-to-large firms in the U.S. earn in the $500K – $800K range in terms of base salary + year-end bonus.

These numbers will be lower in other regions, such as Europe and Asia, and at smaller funds, such as a startup PE firm with $100 million under management.

At this level, carried interest makes it difficult to estimate exact compensation ranges.

We have several examples of the carried interest math in the article on private equity salaries, but in short:

  • Yes, Principals typically receive a small percentage of the carry pool, such as 0.1 – 0.3%.
  • This pool is on a per-fund basis, so on a $1 billion fund, carried interest might equate to $2 million.
  • Many funds last for 5-10 years, so you might accrue anywhere from $200K to $400K per year.
  • And most PE firms also have multiple funds, but you start accruing carried interest based on when you join relative to the start date of the fund.
  • And if you leave before the fund’s payout, you give up your accruals.

The bottom line is that for a Principal at a decently performing mid-sized private equity firm, carried interest could change compensation anywhere from “modestly” to “up to double, total, the normal base salary + bonus.”

It’s not possible to give an “average” range because so much depends on the firm, the fund sizes and terms, and the details of the carried interest.

But it’s safe to say that:

  1. At some firms, yes, carried interest could push a Principal’s total annual compensation to more than $1 million per year.
  2. But it’s unlikely that the Principal would earn $2 million+ per year just because of carried interest. Normally, only MDs and Partners reach that level.

Recruiting: How to Become a Principal

It’s extremely rare to get hired at the Principal level without working your way up the private equity ladder as an Associate and Vice President.

That said, it can sometimes happen if you have enough deal experience in a related field (e.g., as a mid-level banker or corporate development professional).

If it does, recruiting will be far less structured than the on-cycle process for junior hires, and they’ll focus on your transaction experience, ability to source deals, industry knowledge, and experience negotiating legal documents.

The most important point is that you need to present an “investor’s view” of each transaction, such as why you would have acquired or not acquired Company X in an M&A deal.

You’re unlikely to get a traditional LBO modeling test, but you could get a very simple LBO model or an informal case study where you have to explain your approach to a deal or portfolio company.

If you are aiming for the Principal role via internal promotion, you need great presentation and communication skills because you’ll be judged on your ability to persuade people and close deals.

You need to make yourself visible to senior management at the firm, often by finding a specific niche based on industry or deal type and coming up with your own angles on deals.

Coming from the VP level, the #1 challenge might be the legal documents because you don’t normally get much exposure to them.

In addition to internal promotion, other candidates join at the Principal level by starting at larger funds and moving “down-market” to smaller funds.

Since larger firms are top-heavy and highly competitive, it’s often easier to win a promotion by moving to a smaller firm.

Finally, it would be almost impossible to join at the Principal level directly out of an MBA program, even if you’ve had significant pre-MBA experience in the industry.

But you might be able to join as a Senior Associate and advance to Principal from there.

How to Get Promoted from Principal to Partner

Moving from “Partner in training” to “actual Partner” is challenging because very few people at the top levels leave willingly.

Departures usually only happen due to retirements, fund blow-ups, and random emergencies.

The other challenge is that you can no longer “grind your way to the top” by outworking other people at this level.

You need to demonstrate a strong investment track record, and “more hours worked” does not necessarily equal “better deal outcomes.”

To move up, you need to show:

  1. The ability to source good deals, especially at MM and UMM firms; at the mega-funds, it’s more about coming up with unique angles because everyone else is looking at the same deals.
  2. A strong investment process and track record, such as deals that have delivered a weighted average IRR of 20% and no blow-ups where the firm lost money.

It also helps to be at a growing firm that plans to raise new funds, as more Partner-level positions will open up over time.

Final Thoughts on Private Equity Principal Roles

If you decide to grind your way into the Principal role or, in rare cases, recruit to it from another industry, you need to decide whether you’re in it for the long term (e.g., 10-15+ years).

If not, it doesn’t make much sense to accept the role because:

  • Yes, you get paid a lot in base salary + bonus, but if you leave early, you’ll be giving up potentially nearly as much as your cumulative earnings.
  • And if you do have any thoughts of leaving, it will become very difficult to act on those thoughts because you’ll earn far less in guaranteed income in any other industry.
  • It doesn’t set you up for specific exit opportunities. You either get promoted to Partner or fail to get promoted, in which case you’ll have to consider smaller firms or other industries.

The pros and cons of this job are not about the job itself but rather about the private equity industry in general.

As I’ve stated before, my personal view is that the industry is unlikely to get more lucrative or appealing than it currently is.

The market is increasingly crowded with too much capital chasing too few good deals, and the macro conditions that enabled private equity to grow from 1980 onward are not going to last forever.

I also expect the average compensation to decline as returns fall and institutional investors start questioning PE performance vs. the public markets.

On the other hand, there are still good opportunities at smaller funds and in more specialized areas, like real estate and infrastructure.

If you keep all that in mind, becoming a Private Equity Principal could be a good “principal” career goal.

M&I - Brian

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

Break Into Investment Banking

Free Exclusive Report: 57-page guide with the action plan you need to break into investment banking - how to tell your story, network, craft a winning resume, and dominate your interviews

We respect your privacy. Please refer to our full privacy policy.

Comments

Read below or Add a comment

  1. Hi Brian,

    I have noticed big 4 accounting firms now have a value creation team under deal advisory. Do you know what this team does? There seems to be lots of niches within value creations as well such as private equity value creation. Could you provide some insight into the exit opportunities from the value creation teams as well as whether it would be preferable over a “Corporate Finance”, FDD or valuations, modelling team at a big 4?

    thanks

    1. Not sure offhand. I would have to do more research to write about this, but will look at the topic and see what I can find.

  2. Avatar
    Andrew Chua

    Thanks for the great article. Could you discuss about TMT private equity opportunity scene in Southeast Asia? Thanks.

    1. Sorry, don’t have anything on this topic.

  3. Hi Brian,

    In a previous article on private equity recruiting, you mentioned to very specific about what you want (Fund Type, Size, Strategy, Location, Industry, etc.) when it comes to Headhunter meetings,

    Is it acceptable to say you are only interested in industry-agnostic Mega-funds in NYC? Or is that too generic? I’m not interested in any particular industry, but want to work at a MF for the experience/pay/resume. I understand there are only 5-10 real “megafunds” that are extremely selective, so not sure if this strategy is recommended.

    Let me know what you think! Thanks.

    1. You could do that, but the problem is that mega-fund recruiting doesn’t really work that way. Those types of funds normally *go to you* via the recruiters/headhunters, and they target Analysts in very specific groups based on lists and previous recruiting seasons. If they don’t contact you, you could get referrals to the recruiters and say something like that, but you need to act very quickly because PE recruiting starts early and the exact date seems to change each year (I no longer even try to track it).

      So, if you want to do this, the chances are very dependent on your specific bank and group and how many people from there go to the mega-funds each year. Be aware that even at the “top” places, most Analysts do not get in…

  4. Hi Brian, great article.

    I’ve been looking at big tech co’s and growth stage startups and I see there is a fast growing “Finance & Strategy” or “Strategic Finance” function in many of them. These roles recruit from consulting / IB / PE and VC roles. They are usually different to traditional FP&A and finance roles, which primarily recruit accountants. It seems like these roles could be a strong and exit opp for people in the mid levels of prestigious-but-declining finance roles where there haven’t been great exit opps in the past. It would be very interesting if you could write an article on this space.

    1. They could be. I don’t know much about these roles, but I’ll see if we can cover them in the future.

  5. Honest to god I really hope you keep blogging even after you finish with M&I. I came onto your site years ago trying to break into banking. I’m no longer in banking and am getting my MS in CS right now and plan to work in tech, but dude I just like your writing style and vibe with your content heavy. Just love the rawness at this point of how finance is literally a shrinking/declining industry (which I 100% agree with which is why I jumped ship). Would legit follow a personal blog of yours if you decide to make one. Loved your personal blogs on this site because it was just entertaining and fun to read. Looking forward to the future and hoping to see more personal blogs if you decide to pursue that avenue later in life.

    1. Thanks! We’ll see. Probably not going to start a personal blog (I’m old and boring now), but I am interested in other writing projects.

  6. Hi Brian, love the article. You mentioned that with too much capital chasing too few deals, the industry is unlikely to grow. I’ve seen the same opinion from others about lack of growth due to crowding in areas such as VC as well, and with more evidence that actively managed portfolios do not always provide a better return than passive investing, that could negatively affect other investing roles. Similar opinions by research roles as well. With this in mind, what career path in finance would you recommend at this point for those interested in front office type roles/is actually growing?

    1. Thanks. I think the industry as a whole will not grow much for these reasons. That doesn’t mean you should avoid it because it’s still possible to earn a lot and gain good experience in stable/mature markets and even in declining markets. But it does mean the long-term prospects aren’t as great as they once were.

      There are some growing areas like fintech, crypto, maybe emerging/frontier markets, and maybe some quant areas, but I don’t think pure investing / advisory roles have the same future outlook they did in 1980, 1990, or 2000.

      My advice would be to find some niche within finance that is expected to attract a lot more attention over the next few decades (e.g., infrastructure or biotech) and focus on that, even if it’s at a smaller firm. Or find companies doing it and move into a corporate finance role there.

Leave a Reply

Your email address will not be published. Required fields are marked *