How much am I worth? Private equity deal professional, Wall Street

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A panel of New York executive recruiters gives its assessment of typical pay packages: entry-level salaries $150,000-$200,000, comprised of a cash base and bonus; partners can earn about $2m or more in salary and bonus.

Private equity has an image to die for. It is often seen as the brainy, exclusive, yet discreet way to make a decent amount of income. The 2004 Private Equity Analyst-Holt Compensation Survey recently found senior executive pay at U.S. private equity firms rose by 41% to $959,000.

But the Holt survey sample, which includes 'carried interest' in its calculations, was a relatively small sample compared to the reality of several thousand private equity firms in the U.S. When it comes to talking about what people actually earn in the private equity world, discretion turns to silence; there are no benchmarks, and it is difficult to generalize.

Vanessa Bailey founded Cressida Partners in 1999, a private equity recruiting firm based in New York. Her clients' funds range in size from $150m-$4bn.

She says, 'Fund size dictates management fees (typically 2% of the fund size) and these fees are used for paying salaries and for covering the operating expenses necessary to run a fund. So a $100m fund has a lot fewer fees to pay its people with than a $1bn fund. As a result, there is a broad range of pay within the field based on fund size alone.'

Pay will also depend on the senior partners' thinking on compensation, Bailey says. Founding partners may feel they took the initial risk of starting the fund and deserve more of the cash and carried interest. 'At some funds there is a belief that a true partnership means all partners are paid equally,' she says. Some partners believe junior deal professionals should only be paid a base and bonus, but others think every person at the firm should be included in the equity participation.'

Clearly it is a good idea to learn as much as you can before you join. The buyout and venture pay also differs.

Bailey says, 'By definition, buyout professionals receive significantly higher current cash than venture capital professionals as the fund sizes, and resulting fee income, differ so greatly. However, venture capitalists theoretically benefit more from doing a greater number of deals per fund and have correspondingly more opportunities for a 'home run' investment that will yield a gigantic payout.'

Different skill sets are also needed for buy-out and venture funds. Solveigh Marcks is a veteran private equity recruiter in New York who founded The Denali Group in 2002. She and her team focus particularly on private equity, hedge funds and investment banking searches.

Marcks says, 'On the venture side, it is very important to have an understanding of the science or technology that underlies the investment. It is also useful for investors to have operational experience which allows them to better assess business plans and management teams.'

Private equity remains the top choice out of jobs in financial services in the U.S. for keen graduates fresh out of business school. 'The top decile of B-school graduates head in this direction,' says Bailey.

Is every keen MBA grad hoping to join the goose that lays the golden egg? While the annualized cash packages for deal professionals in private equity are attractive, the real meat of the packages comes from the equity stakes they have in the fund.

If the fund makes successful investments, it is possible that a partner could make $20m in a year where the firm exits some of its investments.

Bailey says, 'There are instances where a partner had a $100m pay day resulting from the equity distributions of a hugely successful investment. Those partners who made the Snapple and Gulfstream investments, for example, come to mind.'

Of course that does not mean they are making those sums year in and year out. They might labour away for four or five years before selling one of their investments at a huge profit.

'Private equity pay can be very lumpy, with many years of nurturing your investments before you see the fruits of your labour,' Bailey says. This differs from any other field of financial services where pay is more closely linked to quarterly or annual performance.

Both Bailey and Marcks caution that private equity is a rapidly maturing and increasingly competitive business where it is harder to generate the investment profits that might have resulted in some eye-popping sums of cash. Compensation may be set to become more standardized, but for the moments it continues to be determined on a fund-by fund basis.

Figures and commentary by Private Equity Analyst-Holt Compensation Survey, Cressida Partners and The Denali Group

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