Morning Coffee: The private equity firm where juniors can earn more than partners. Earning $355k, saving nothing at all
If you're a senior person in a private equity firm you can make a tremendous amount of money. Pay varies with the size of the firm, but Heidrick & Struggles' recent compensation report for the industry put managing partners on anything from $975k to $6.4m in cash compensation (salary plus bonus), plus up to $56m (accrued over six or so years) in carried interest. Pretty fancy.
Junior pay isn't quite as lavish, but isn't bad either. Heidrick has private equity associates on salaries of $220k to $415k and carried interest of up to $1.3m. Associates don't always get carried interest, though. That depends on the fund. Some funds are kinder to their associates than others.
One of the most beneficent funds to associates appears to be CVC Capital Partners. In a semi-revelatory article about life inside the European private equity firm yesterday, Bloomberg said CVC sometimes favours its youths over its old hands. It's not a common occurrence and requires a specific circumstance in which a junior is more instrumental than a partner in landing a big deal which brings in a big amount of money and where three senior executives then agree that the junior is more deserving. Bloomberg spoke to more than a dozen people at CVC for the article, so presumably this really happens.
In return for this glimpse of generosity, it seems that juniors - and everyone else - at CVC are expected to work very hard on deals that are probably won't come to pass. The fund reportedly has a 'brutal' method for winnowing down investment pitches from its teams, and very few survive it. Once a week, an 11-person investment committee convenes to hear the pitches, and the fund only invests if seven or more of them approve. This method screens out almost everything. Last year, CVC only did 19 deals.
The firm's generosity also works in reverse. CVC pays well because it rewards performance and does so at an individual level - senior staff don't simply get paid for raking in fees and profits from great deals they didn't do. However, when a deal isn't so great and the firm loses money, this reportedly creates a hurdle for the future: you won't get paid more carried interest until you recoup all the money the firm lost. If you're a junior who accrues a lot of carried interest in a deal that goes bad, this could clearly be a problem.
The other potential downside about life at CVC Capital Partners is its lingering reputation for machismo. German partner, and ex-Goldman Sachs banker, Alexander Dibelius is particularly famous for the video below, in which he bench-presses his wife. The firm awards a 'shark of the year award' to the person bringing in its largest deal. The chief executive likes to climb Everest. CVC spun out of Citigroup in 1993 and only got an HR department in 2009. It now has someone dealing with diversity, but only one female partner and 33 men. As CVC prepares to go public, it's trying to change, but its 'hard-charging' culture may be hard to change.
Separately, if you're earning $350k a year but have no money left at the end of the month, you're not alone. A first-generation-high-earning-sole-breadwinner on $350k has written to MarketWatch's money advice column saying that after monthly repayments on $88k in student loans, $170k in electric car loans and taxes, bills and mortgage, there's almost nothing left.
He is advised that this is the result of 'Parkinson’s Law', which states that your spending will always rise to match your income. Having a money coach is apparently the only way to avoid this phenomenon.
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