Why do some employees opt for the small, startup investing firm, while others arrive at the larger, more established financial firms? In an interesting review, private equity data provider Pitchbook recently provided us with some survey evidence on the reasons. Here’s a look.
Cash Compensation by Firm Size
The first look is cash compensation by firm size. In dark blue below is cash compensation at firms with assets under management (AUM) of between $1 to $2 billion. At these firms, the median cash compensation is $467,500. Not bad by almost any measure, but compared to large firms, the picture is not as bright.
In light blue are managing directors and partners of medium-sized investment firms. The median cash compensation at these firms reaches $650,000, a healthy jump from the smaller firms.
Moving down the figure, in yellow are the larger firms with AUM of $6 billion or more. The cash compensation of these firms is large, reaching $803,000.
When it comes to being a managing director or partner at an investment firm, it’s survival of the biggest.
Median Share of Carried Interest
Shifting attention to carried interest, the following figure has that view. Interestingly, the medium-sized investment firms are much more favorable to their managing directors and partners. At medium-sized companies, the median share of carried interest reaches 5.5%, higher than the 5% earned at the smaller investment firms and much higher than the share at larger investment firms (1.2%). Hmm.
What About Vesting Times?
With the following background, how do vesting times compare among the three investment firms? The following has the results of the Thelander-Pitchbook Compensation Survey.
Overall, for smaller firms, the most popular vesting time is seven to eight years, capturing 32.3% of survey respondents, followed by nine years or more at 25.8% of survey respondents, and 22.6% for a vesting time of five to six years.
Interestingly, for medium-sized firms, the most popular vesting time is five to six years (34%), followed by seven to eight years (21%) and three to four years (20%). Apparently, you get paid sooner working at a medium-sized investment firm compared to a smaller investment firm.
Lastly, looking at the larger investment firms, the most popular response was 40% for a vesting time of three to four years, followed by 32% for a vesting time of five to six years and 17% for a vesting time of seven to eight years.
Overall, managing directors and partners tend to get a shorter vesting time when they work for larger investment firms. Guess it pays to go big.
Summing Up
Overall, large cash salaries and shorter vesting times explain a lot of the shift in talent from smaller investment firms to those with $1 billion or more in assets under management. There’s no sign yet of this trend reversing.
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