You can’t talk about a career in private equity without mentioning the money. Associates with just two years of industry experience can earn between $250K-$400K, making it one of the most lucrative paths in finance.
While junior roles offer impressive pay, the real financial rewards come when you rise through the ranks. It’s not just about higher base salaries and bonuses. As you progress, carried interest — or “carry” — becomes a key factor, enabling senior employees to claim a share of the profits from successful investments. Put simply, we’re talking about payouts worth millions of dollars.
Let’s take a closer look at the structure of private equity salaries and the latest pay trends. We’ll also explore how carry boosts compensation from eye-catching to eye-watering levels, as well as recent market shifts that could impact this PE perk.
Big firm benefits
At the junior level, private equity salaries are structured similarly to investment banking. Associates and senior associates receive a base salary and an end-of-year bonus, which is determined by individual and firm performance. This bonus can account for up to 50% of total compensation, and the timing of the payout is a savvy strategy to retain talent.
In Heidrick & Struggles’ 2024 private equity salary survey, associate and senior associate compensation ranged from $250K to $400K, with the highest earners coming from the largest firms — those with $40 billion or more in assets under management (AUM).
This highlights a broader trend in private equity salaries, which is that larger firms tend to pay more. With the capital to execute multi-billion-dollar deals, they generate substantial management fees and carried interest, resulting in bigger payouts for employees. While smaller companies may deliver proportionally higher investment returns, the sheer scale of transactions at the big firms drives greater employee earnings.
Where carry comes in
Despite the name, “carried interest” isn’t about hauling around stacks of cash. Although, given the sums involved, that might occasionally call for some heavy lifting.
The term actually dates back to early maritime trade, when ship captains took a 20% share of the profits from the goods they “carried” in exchange for navigating treacherous waters. Today, private equity professionals enjoy a similar deal, earning a cut of the profits from the investments they steer to success.
When it comes to how those profits are realized, private equity firms typically rely on a fee structure built around two key components: management fees and carried interest.
Management fees are the annual costs that general partners (GPs) charge to cover the firm’s day-to-day expenses, like salaries and office rent. They are a fixed percentage of the fund’s AUM, usually around 2%, and are paid regardless of how the fund performs.
On the other hand, carried interest is a performance-based fee that can vary significantly. It grants firm executives and fund managers a share of the profits, acting as a strong incentive while aligning their interests with those of investors. Unlike the management fee, carry is only earned if a fund achieves a pre-agreed minimum return. The percentage of it can range from 15-30% of the profits, but it generally amounts to 20% of a fund’s returns.
The prize for progression
At the associate and senior associate level, carry is extremely rare. While these private equity positions offer a solid salary, there’s a strong incentive to advance in order to become eligible for carry on the deals you help manage.
Although this benefit kicks in at the vice president level, employees will want to keep climbing, as carry becomes a larger portion of compensation for more senior positions. In Heidrick & Struggles’ survey, VP salaries peaked at $685K, while managing partner compensation exceeded $20 million. With just three promotions between these levels, the pay disparity is vast.
Referring back to the percentages, we can demonstrate the dramatic impact of carried interest on compensation.
If a $100 million fund grows to $200 million by the end of year one, the private equity firm would collect 2% in management fees, amounting to $2 million, and 20% in carried interest on the profits, which would be $20 million. While the fund size is substantial, it’s feasible that it could be managed by a relatively small team — potentially 10 or fewer investment professionals.
In this scenario, the founding partner would earn a significant portion of the carried interest, potentially $5 million or more. Meanwhile, managing directors could receive bonuses ranging from $1 to $3 million, while principals and VPs take home $250K to $750K in carry.
Trouble on the horizon?
Carried interest has long been a point of controversy because it’s taxed at long-term capital gains rates, which benefit from a lower tax rate than ordinary income. As a result, senior employees receiving carry — who, as noted, typically have a larger portion of their compensation tied to it — can pay lower taxes than junior colleagues, despite earning significantly more.
This subject is under greater scrutiny than ever, as carry bonuses exploded in 2024. Last year, mega fund KKR allocated $843 million in carry-related compensation, nearly doubling the payouts from the same period in 2023. Similarly, Carlyle Group increased its rewards, handing out $542 million, an almost 50% jump from $286 million the previous year.
These eye-watering increases have caught the attention of policymakers, who view carried interest not only as a driver of pay disparity among employees, but also as a tax loophole that enables investors to avoid paying their fair share. Donald Trump first attempted to eliminate this tax break in 2017, but his proposal was blocked by Congress. Now, he’s reignited the debate, setting the stage for potential clashes with Wall Street and wealthy financiers.
Despite the swirl around this subject, Trump’s tax plan is likely to face significant challenges. Private equity firms and hedge funds have long fought to preserve the favorable tax treatment, while pro-business Republicans have resisted closing the carry loophole. Given that previous efforts have failed, it seems private equity professionals can expect to cash in on carry for the foreseeable future.
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