Junior private equity staff not carried away with carried interest

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Lower-level private equity professionals have seen sharp pay increases, but are still missing out on the most lucrative carried interest incentives.

The 2007 Private Equity Analyst-Holt Compensation Study reveals junior private equity pros - principal, associate, senior associate and analyst - have seen the juiciest pay hikes this year.

The median pay rise was 29.2% at these levels, taking the average package to $215k (103k) including bonus. But while salaries and bonuses are rising fast, carried interest paid to juniors remains derisory at an average of just $1.3k (620).

By comparison, the top dogs in private equity can expect to draw in close to $1m (480k), of which $300k (144k) is carried interest.

Carried interest is profits distributed from investments that are generally deferred for up to five years.

Gail McManus, director at Private Equity Recruitment, says juniors' lack of carried interest is unlikely to be an earth-shattering calamity, with most entry-level private equity staff keener to receive ready cash than wait five years for a payout: "There is a move generally for firms to give associate level improved levels of bonus, making them more akin to investment banks' bonus schemes, rather than carried interest."

"I would say this is a positive step to meet the needs of the people in these roles who want more immediate cash."

This may be so, but the absence of carried interest at junior levels underscores the distinction between the senior haves and junior have-nots in the private equity world, and may reinforce disgruntlement amongst juniors frustrated at the lack of opportunities for promotion.

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