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.

The outside investors or Limited Partners might include pension funds, endowments, insurance firms, family offices, funds of funds, and high-net-worth individuals.

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.

For more, see our articles on the private equity industry, private equity strategies and investment banking vs private equity.

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.

That said, some professionals do leave the field for hedge funds and other buy-side roles (for more, see our coverage of private equity vs. hedge funds).

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 large private equity firms (“mega-funds”), junior-level hires (“Associates”) are overwhelmingly investment banking analysts who spent 2-3 years at bulge bracket or elite boutique firms.

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 the investment banking associate job).

To get into private equity, you’ll need:

1. A sequence of highly relevant work experience, including transactions and financial modeling.
2. Top academic credentials (grades, test scores, and university reputation);
3. A lot of networking and interview preparation;
4. Something “interesting” that makes you appear to be a human rather than a robot;
5. The ability to think critically about companies and investments rather than just “selling” them.
6. 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.

If you want to learn all the required technical concepts – Excel, accounting, valuation, financial modeling, and LBO modeling – from the ground up, your best bet is our BIWS Premium package, which includes several LBO and 3-statement modeling case studies:

If you want to review the concepts and quickly test yourself before interviews, our IB Interview Guide includes a 120-page guide to LBO models and shorter/simpler LBO case studies:

Finally, if you have more experience, already know the fundamentals, and want complex case studies and practice models, the Advanced Financial Modeling course has an advanced LBO model and a take-home private case study example.

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, but here’s a summary of the age, earnings potential, and promotion time for each one:

We are not going to address the exit opportunities and hours/lifestyle for each level because PE is usually the end goal, and the hours don’t necessarily change 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 25^th percentile to 75^th 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:

1. An Associate who has been at the firm for a few years and been promoted directly, or
2. 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 25^th to 75^th percentile is in the $500K to $800K 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

Private Equity 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.

The post The Private Equity Career Path: The Complete Guide appeared first on Mergers & Inquisitions.

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:

1. 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.
2. 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.
3. 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:

1. 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.
2. 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.

The post The Private Equity Partner: Is It Good to Be King? appeared first on Mergers & Inquisitions.

And that’s odd because merchant banking (MB) is a combination of those two other industries.

It’s fair to say that MB is one of the most overlooked opportunities in finance.

Part of that’s due to confusion about the name, and part of that’s because of business model changes at the large banks:

Definitions: What is “Merchant Banking”?

Merchant Banking Definition: Merchant banks advise companies on M&A, equity, debt, and restructuring deals and invest in companies, acting like combined investment banks and private equity firms.

Merchant banks started in the Middle Ages as a way to finance Italian grain and cloth merchants.

Over time, “merchant bank” became a synonym for “investment bank” in the U.K., but the terms now describe separate entities.

Partially because of this confusing history, a merchant bank today could mean any of the following:

• A large investment bank also runs an internal private equity division that it calls “merchant banking.” This PE division operates independently and does not invest in the bank’s clients.
• A large investment bank has partial ownership in an external private equity firm, and it labels these activities “merchant banking.”
• A smaller, independent investment bank does the usual advisory deals and makes minority-stake investments in companies, similar to growth equity firms.
• A smaller, independent investment bank occasionally invests in the companies it advises on deals such as M&A and private placements.

If the “merchant banking” group is a separate, private equity-oriented division, it’s quite similar to private equity anywhere else.

But if the group is integrated with the normal advisory work the bank does, it’s more like “investment banking with bonus content.”

“But wait,” you say, “If merchant banking is a cross between IB and PE, why is it not discussed as widely? Why don’t more students want to get into the field?”

There’s no single answer to this question, but the main reasons are:

1. Highly Variable Work Responsibilities – It’s harder to describe what a merchant bank does, so areas like M&A investment banking tend to get more attention.
2. Large Banks Have Been Moving Away from Merchant Banking – Even before the Volcker Rule, the bulge bracket banks had been winding down their merchant banking activities because they didn’t want to compete against the PE mega-funds on bids for companies.
3. There Aren’t That Many Prominent Merchant Banks – Elite boutiques tend to be more visible because they advise on larger deals. Also, many of the top merchant banks want to retain their employees rather than sending them off to exit opportunities.
4. Dedicated Merchant Banks Are Often More Similar to Mixed IB/VC Firms – Read the descriptions carefully, and you’ll see that many of these banks invest in “early-stage startups” in their industries.

Merchant Banking vs. Private Equity

Continuing with the point above, it’s not quite accurate to say that merchant banks are “combined IB and PE firms.”

Both investment banks and merchant banks indeed advise companies on deals, but the investing side at smaller, dedicated merchant banks tends to be more like venture capital or growth equity.

Partially, that’s because their available capital is closer to what an average VC or growth equity firm might have.

But it also happens because if a merchant bank runs a sell-side M&A process for a client, it can’t say, “Process over! We’re going to buy this company outright instead. Potential buyers, please go away.”

However, it could easily make a minority stake co-investment in the company along with the other buyer(s) or investor(s) and say, “We really believe in this company! Trust us.”

The Top Merchant Banks and Merchant Banking Groups

Any discussion of the top MB groups must start with Goldman Sachs, which has an actual “Merchant Banking” group.

It’s essentially their internal private equity, private credit, and real estate and infrastructure investing businesses, and it’s separate from their normal investment banking divisions.

If you work in one of those teams, it will be similar to private equity, direct lending, mezzanine, real estate private equity, or infrastructure private equity at an upper-middle-market or mega-fund PE firm.

Goldman Sachs increasingly positions itself as an “alternative asset manager,” so merchant banking has become more prominent.

Then there are large investment banks that also do merchant banking, but usually via external arms.

For example, Morgan Stanley’s North Haven group does a lot of real estate and infrastructure investing, and Rothschild operates its merchant bank’s “corporate private equity” business via Five Arrows Capital.

Other large banks, such as JPM, Citi, DB, and CS, did merchant banking directly before 2008 but have since moved to this model of investing via external entities.

For example, One Equity Partners is the “private merchant banking arm” of JP Morgan, focusing on leveraged buyouts and growth equity investments in middle-market companies.

Some of the elite boutiques, such as Centerview and Greenhill, have similar arrangements as well.

Outside of these larger firms are the independent, dedicated merchant banks.

At the top of that list is the Raine Group, a prominent TMT-focused firm and probably the most “famous” merchant bank.

Other names include BDT Capital Partners (family-owned businesses), Intrepid Financial Partners (energy), LionTree (TMT), Tudor, Pickering, Holt & Co. (energy), Broadhaven (financial services), Incentrum (healthcare and tech), and Vaquero Capital (tech).

Recruiting: How to Get Into Merchant Banking

The MB recruiting process depends heavily on the type of group you’re targeting.

If you’re aiming for the Goldman Sachs merchant banking division or the other large banks’ external MB divisions, it’s essentially private equity recruitment all over again.

These groups tend to favor candidates from their own IB divisions, at least for PE roles. For credit and other areas, external hiring is more common.

The process is more similar to traditional investment banking recruitment one at the smaller, dedicated merchant banks.

In the U.S., expect interviews that start over a year before internships, with candidates drawn from undergrad and Master’s programs.

You can still use the same networking tactics (cold emails and informational interviews) to win interviews, and a few of these banks might conduct on-campus recruiting at the top schools as well.

The main difference is that there are fewer internship positions because there aren’t that many dedicated merchant banks.

Merchant Banking Interview Questions

For interview questions, take a look at the detailed articles on investment banking interview questions and private equity interview questions on this site.

If you’re interviewing at a smaller, dedicated MB, assume that it will be mostly IB-style questions.

Unlike the elite boutique banks, merchant banks do not have a reputation for asking extremely-difficult-to-obscure technical questions.

If anything, interviewers sometimes focus more on behavioral questions because they want to assess your long-term interest in the field.

Another difference is that even if you’re interviewing at a smaller/dedicated MB, you need to know their portfolio companies.

Research them, understand the themes, and be able to speak to 1-2 companies in more detail.

Case studies and financial modeling tests will come up if you’re interviewing at groups that operate more like dedicated PE firms, but they are not likely at the smaller merchant banks.

Finally, the “Why merchant banking?” question is even more important than the traditional “Why investment banking?” question.

While investment banks expect their Analysts to move on after a few years, many prominent merchant banks want to retain their new employees for the long term.

So, your answer to this question needs to be a little more in-depth than “I want to work on Type X deals in industry Y.”

You could answer by pointing to the benefits of having “skin in the game” by investing in companies instead of just advising them, and you could highlight the advantages of advisory work combined with investing work.

For example, you’ll get to work on many deal processes rather than rejecting 99% of deals in the early stages, and you’ll also be able to use critical thinking rather than just blindly selling your clients.

Also, monitoring portfolio companies may be less of a burden in merchant banking because the smaller MBs rarely take control positions.

So, merchant banking combines the more interesting parts of IB and PE while dampening the less engaging bits.

Merchant Banking Careers: Work, Hours, and Promotions

Once again, the theme here is “a mix of IB and PE,” but at the merchant banking arms of larger banks, it’s much more like PE in terms of daily tasks, hours, and promotions.

So, refer to the private equity career path article and expect numbers in-line with the ones there: 60-70 hours per week at the junior levels and more like 80+ per week at the biggest funds.

Promotions to the mid-levels, such as Senior Associate and Vice President, are fairly common, but advancing beyond that is challenging because few senior people leave willingly.

At the smaller, dedicated merchant banks, expect work, hours, and promotion timelines in-line with those of the investment banking career path.

Some people argue that merchant banking hours are a bit better than standard investment banking hours, but I’m not sure that argument is correct.

The more likely explanation is that the hours at smaller firms, in general, are better because the average deal size is smaller, and there are fewer simultaneous deals.

With promotions, one key difference is that many of these dedicated merchant banks want to retain good Analysts and Associates for the long term and groom them into senior bankers.

So, there may be a slightly higher chance of getting promoted if you perform well enough.

Merchant Banking Salary + Bonus Levels

Once again, this category comes down to: “Closer to IB compensation or PE compensation depending on the firm and group type.”

If you’re too lazy to click through to the articles on investment banking salaries and private equity salaries, that means:

• IB: Base salaries for Analysts start at just under $100K, with total compensation around $150K – $200K; it increases to the mid-six-figure range as you move up through the Associate and VP levels, and MDs might earn around $1 million per year. Theoretically, merchant banking MDs have the potential to earn more if their investments perform well enough – but I couldn’t find much data to support this.
• PE: Associates usually earn in the $150K – $300K range and advance to the mid-six-figure range at the Senior Associate, VP, and Director/Principal levels. MDs and Partners might earn around $1 – $2 million per year in salary + bonus, but carried interest potentially takes compensation to a higher level if their investments perform well enough.

Similar to the elite boutiques, you get paid in cash even at the senior levels at the dedicated merchant banks – no deferred or stock-based compensation to worry about.

Merchant Banking Exit Opportunities

The concept of “exit opportunities” doesn’t apply as readily if you’re at a large bank’s private equity arm because that is typically viewed as the exit.

If you get tired of it, you could potentially get into corporate development, join a traditional PE firm or family office, move to a portfolio company, or even get into related fields like venture capital and growth equity.

And if you want to make a total career change out of finance/investing, you could always complete a top MBA program to reevaluate your options.

On the dedicated merchant banking side, the top firms, like Raine Group, want to keep their Analysts around and promote them.

So, if you’re going into IB mostly for the exit opportunities, you should not be targeting these firms in the first place.

It’s certainly possible to win the standard exits coming from a merchant bank, but you will have to network more aggressively and act more independently – just as you would at a boutique or middle market bank.

I’ve seen suggestions that some of the top merchant banks are on-par with the elite boutiques, but I don’t think that is true.

To be clear: they are great firms that work on interesting deals and offer good careers.

But if your main life goal is to work at a mega-fund PE firm, you should still target the traditional elite boutiques and bulge bracket banks (and even then, your odds are still not great).

Is Merchant Banking Right for You?

In short, it depends on what you mean by “merchant-banking” as well as your current status.

If you’re thinking about joining the private equity arm of a large bank after working in IB, it’s comparable to traditional PE, so it has all the advantages and disadvantages of careers there.

If you’re an early university student who’s aiming for 1-2 initial internships so you can be competitive for IB recruiting at large banks, merchant banks can be good entry points.

You can cold email them and ask directly for internships, and you should get a decent response rate if you’re using good templates and putting in enough effort.

They’re not as overlooked as search funds, but they’re still off the radar of most students – which means less competition for you.

On the other hand, I’m not sure I would recommend merchant banking as the best option for an entry-level job.

If you want to stay in the industry for the long term and do both advisory and investing work and you get an offer at a good firm, sure, go ahead.

But do not be fooled into thinking that it’s comparable to “starting at a large PE firm” – because it’s not.

Unless you happen to win a full-time Analyst offer in the PE arm of a large bank (good luck), the style of investing is quite different, and you will work on smaller deals.

And you’ll have to deal with confusion over the term “merchant banking,” as recruiters are not exactly known for their understanding of nuance.

So, as with other alternatives to traditional IB/PE, merchant banking can be a good option for the right person – but it’s also a more specialized one.

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