American economist Thomas Sowell put it best: “The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it.”
And scarcity is one of the reasons why MBA jobs in private equity have become some of the most sought-after and prestigious any MBA can land these days. Today’s Masters of the Universe are being drawn not to Wall Street per se, but rather to the private equity firms.
As a job category for freshly minted MBAs, it’s tiny compared to consulting, investment banking or tech. The industry largely recruits at just a few of the very best schools. And it’s extremely lucrative, too, paying eye-popping rates of compensation to those lucky enough to get a PE or VC job.
MEDIAN BASE SALARIES IN PRIVATE EQUITY AT STANFORD: $170,000 TO START
Look no further than the latest employment reports from Stanford University’s Graduate School of Business and Harvard Business School for convincing evidence.
The world’s highest paid group of MBAs last year were Stanford grads who went into private equity and leveraged buyouts. The 12% of the class that ventured into that industry landed jobs with the highest salaries of all: A $170,000 median base, with a high of $225,000 and a low of $100,000. That’s the highest median salary ever paid for an MBA graduate–and yet that’s not the full story. The median signing bonus hit $40,000, while the median other guaranteed compensation in PE was a whopping $175,000, with a high of $300,000.
Of course, that latter “other compensation” is typically some portion of the firm’s carried interest (or carry), which represents the portion of deal profits investors pay PE firms after a given fund’s companies have been sold. Add it all up and the median first-year pay package was $385,000 last year at Stanford.
PRE-PARTNER MBA COMPENSATION AT PE FIRMS RANGES FROM $300,000 TO $1.75 MILLION
It was pretty much the same deal at Harvard Business School, where 13% of the Class of 2014 went into PE and LBO jobs. The median salary was $150,000, higher than any other industry category, with median sign-on bonuses of $25,000 and median other guaranteed compensation of $80,000. What’s more, four of every ten students was given other year-end pay.
These numbers are just the start. Typically, PE firms pay pre-partner MBAs $300,000 to $1.75 million a year, while partners pull down between $1 million and $10 million-plus annually.
What’s more, the companies that are paying these uber-salaries are not well known outside of finance. Instead of names like Citi or McKinsey & Co., the bigger players in PE are firms that rarely come up in most business conversations: TPG Capital, The Carlyle Group, The Blackstone Group, Kohlberg Kravis Roberts, Apollo Global Management, and Bain Capital, where Presidential candidate Mitt Romney made a name for himself.
‘MOST PEOPLE WON’T EVEN BE GIVEN THE TIME OF DAY BY THESE FIRMS’
The catch to all of this is that while PE jobs have emerged as a major industry category for a handful of top schools, those jobs are in short supply and most PE firms only recruit at the very top business schools (generally the M7, along with Tuck, Yale, and Stern). “This is competitive,” explains Angela Guido, founder of MBA Career Coaches. “Most people won’t even be given the time of day by these firms. If you don’t have the background, you won’t be given a chance. But if you want to be in PE, there is a way you have to go after it.”
Indeed. Students without pre-MBA experience in the field are at a clear disadvantage, but Guido believes that early career planning can significantly increase the odds of landing a PE job once you get an MBA. “It’s going to make a huge difference for people who are earlier on in the process before they apply to an MBA program,” says Guido, whose firm has produced a free primer for applicants and students who want to take a quick deep dive into the industry.
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