If you're considering which area of the buy-side to move into after your banking career, our 2024 salary and bonus report has some pointers.
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The report is based on the 6,000 responses we received to a survey which ran earlier this year. We queried financial services professionals in all corners of the industry, all corners of the world, and all levels of seniority.
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Here’s what we learned.
Private equity & hedge fund working hours aren’t as bad as banking’s
Whether you work in a hedge fund or in private equity, you'll be working long hours, but your hours will probably be less than in other high paying banking jobs. The hedge fund and private equity professionals we polled were working anywhere between three and 20 fewer hours per week than banking’s front-office functions.
Investment bankers (those in and capital markets) told us they work an average of 64 hours a week. By comparison, in our respondents in both hedge funds and private equity told us they worked closer to 47 hours a week on average. This was also less than the 51 hours a week worked by sales and trading professionals in investment banks.
Hedge funds pay a lot more than private equity firms
Hedge fund pay is higher than pay in private equity. The average hedge fund employee earns $487k in combined salary and bonus; the average private equity professional earns 'just' $263k in salary and bonus.
The real difference, though, is in pay per hour. While hedge funds paid nearly $200 per hour in compensation in 2023, private equity funds paid $107 on an hourly basis. That’s a pretty significant difference.
On a rank-by-rank basis, the difference in pay was also stark. Juniors in hedge funds earned a lot more than juniors in private equity, as did those of director-equivalent rank. Compensation for vice president- and managing director-equivalent roles was also much higher at hedge funds than in private equity.
What makes hedge fund jobs better than private equity jobs?
Aside from the pay, there are other facts that lead people to hedge funds over private equity firms.
Recruitment processes, for one. Private equity recruitment has been called a "nightmare" before, with the process alone putting off some junior bankers.
There's also the fact that private equity has undergone an institutionalization of sorts, with many of banking's pitfalls - such as the insane working hours - rearing their head again. Apollo juniors were complaining about 20-hour workdays just a few years ago.
As ex-banker, ex-private equity professional, and ex-hedge fund portfolio manager Brett Caughran put it, “People find hedge funds to be more intellectually stimulating and a better working and compensation environment.”
"The problem with private equity is that it's basically banking 2.0, except that instead of being an associate with some analysts working for you, you're the person at the bottom of the ladder again," one junior banker told us. "I know people in PE who are still regularly working until 2am, and personally I want to move away from that," he added.
How did hedge funds and private equity firms perform last year?
Big hedge funds such as Citadel and Millennium had a strong year in 2023.
Private equity, meanwhile, had one of its worst years on record as firms struggled to allocate capital and exit existing investments. EY, the consulting firm, estimates that private equity exits declined 28% in 2023 versus 2022, and follow-on funds in which stakes are sold at a discount became increasingly popular.
It’s also worth pointing out that we didn’t poll our private equity respondents for how much they were paid in carried interest, which forms a sizable part of compensation in that industry.
By the way, curious students reading this, you don’t need to go into investment banking to get into a hedge fund (or private equity firm). A lot of top hedge funds and some private equity firms now offer their own student and graduate programs, although competition will be insanely fierce, to the tune of 400 people competing for one place, around the same as a major private equity firm such as Blackstone. It’s a competition worth entering, however – Citadel pays its interns$20k a month, for instance.
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