Private Equity
What is covered
One of the most common exits from investment banking. Where hours can arguably be worse than banking, but the idea of owning some of the businesses in the portfolio can make it worth it. Some of the biggest funds in the world such as KKR and Blackstone can LBO a town if they want to. This is a fast-paced business with the opportunity to build up a portfolio of businesses and help it grow.
In this module we explain what private equity is, the pay, hours, and hierarchy. Everything you need to know to answer the all-important question of "what is private equity?"
What do PE analysts do?
Overview
Private equity is an asset management business in which firms raise capital from institutional and high-net-worth investors and use that capital to buy ownership stakes in private companies, improve those businesses over time, and eventually exit the investments for a profit.
Private equity firms typically acquire controlling or influential stakes in companies using a combination of equity capital and borrowed funds, which is why many private equity transactions are referred to as leveraged buyouts. The goal of a private equity firm is to generate returns for its investors by increasing the value of portfolio companies through operational improvements, strategic changes, acquisitions, financial restructuring, and growth initiatives before selling the company or taking it public. This process takes anywhere from 3-7 years and is a much longer process than other deals in this industry.
Private equity firms are generally organized around investment strategies and fund size. Most traditional private equity firms focus on buyouts, where they acquire control of mature companies with stable cash flows.
Some firms specialize in growth equity, where they invest in expanding companies with less leverage, while others focus on distressed or special situations investing. Regardless of strategy, the core functions of a private equity firm include sourcing investment opportunities, evaluating potential investments, executing transactions, managing portfolio companies, and exiting investments.
Private equity funds can invest across a very wide range of industries, and most firms either specialize in a handful of sectors or build dedicated industry teams as they grow. Industry focus matters because it shapes the types of companies a fund evaluates, the operational expertise it develops, and the networks it relies on for sourcing deals and managing portfolio companies. While some funds are generalists and invest wherever they see attractive risk-adjusted returns, many funds concentrate on specific industries where they believe specialization creates an edge.
Many smaller and middle market funds have had recent success in HVAC and industrial companies. However, one of the largest and most common industry focuses in private equity is technology. Technology-focused funds invest in software, IT services, fintech, cybersecurity, data analytics, and enterprise infrastructure companies. These businesses are often attractive because of recurring revenue models, high margins, scalability, and strong cash generation once mature. Within tech, many funds further specialize in areas like SaaS, vertical software, or infrastructure software, building deep expertise in metrics such as customer retention, lifetime value, and unit economics.
Private equity hierarchy
The hierarchy within a private equity firm is relatively stand to others we have mentioned here, though titles and promotion timelines can vary by firm. At the most junior level are interns, followed by analysts or pre-MBA associates, then post-MBA associates, senior associates or vice presidents, principals or directors, and finally partners or managing directors. As professionals move up the hierarchy, their responsibilities shift from analysis and execution toward decision-making, portfolio oversight, and capital raising. Compensation in private equity consists of base salary, annual bonus, and carried interest at senior levels. Base and bonus make up the majority of compensation for junior and mid-level professionals, while carry becomes the dominant driver of wealth for senior professionals. Carry represents a share of the profits generated by the fund and is typically paid out over many years as investments are exited.
Analyst
Analysts or pre-MBA associates are usually early-career professionals with prior experience in finance, consulting, or accounting. They spend most of their time analyzing potential investments and supporting due diligence. This includes building and reviewing leveraged buyout models, analyzing financial statements, researching industries and competitors, preparing investment committee presentations, and monitoring portfolio company performance. Analysts are expected to develop strong technical skills and an understanding of how private equity evaluates risk and return, but they generally do not lead deals or make final investment decisions.
Intern
Interns in private equity are typically undergraduate juniors, seniors, or MBA students and are brought on for short, fixed-term programs, often during the summer. Their work focuses on supporting live deals and ongoing portfolio analysis. Interns help with financial modeling, market research, investment memos, industry analysis, and data gathering. Because teams are small, interns are often exposed to real investment work rather than administrative tasks, and performance is evaluated based on analytical ability, attention to detail, and judgment. Full-time return offers are possible but not guaranteed and depend heavily on fund needs and performance.
Analyst (1-3 years in role)
Associate
(3-7 years in role)
VP
(7-12 years in role)
MD
12+ years
Intern (1> year in role)
Associates
Senior associates or vice presidents are responsible for managing deal processes and overseeing junior team members. They coordinate due diligence workstreams, lead financial and strategic analysis, and often serve as the primary point of contact with advisors during a transaction. At this level, professionals begin to have influence over investment decisions and may take observer roles on portfolio company boards. They are also increasingly involved in portfolio company strategy, add-on acquisitions, and performance reviews.
Directors
Principals or directors sit just below the partner level and are evaluated largely on investment judgment and leadership. They lead transactions from sourcing through execution, negotiate deal terms, and play a significant role in portfolio management. Principals are often expected to contribute to sourcing new deals through relationships with bankers, executives, and intermediaries. Compensation at this level becomes more variable, and many professionals begin to receive meaningful participation in carried interest.
Managing Directors (MDs)
Partners or managing directors are senior leaders and economic owners of the firm. They are responsible for fundraising, sourcing investments, setting firm strategy, and making final investment decisions. Partners typically sit on portfolio company boards, guide major strategic initiatives, and oversee exits. Their compensation is heavily tied to the performance of the funds they manage and includes a share of carried interest, which can result in very large payouts in successful fund cycles.
Salary ranges (USD)
Private Equity Compensation Ranges (U.S. Averages)
Total Annual Compensation = Base Salary + Bonus (Carry not included unless noted)
Lower Middle Market Middle Market Mega Fund
Intern (Summer) 20-40 hourly 30-50 hourly 40-70 hourly
Analyst $150K – $250K $200K – $300K $250K – $350K
Associate $250K – $400K $300K – $500K $400K – $600K
Senior Associate $350K – $500K $450K – $700K $600K – $1M+Principal
Director $600K – $1.2M+ $800K – $1.8M+ $1.5M – $3M+
Partner / MD $1.5M – $5M+ $2.5M – $10M+ $5M – $20M+
These ranges reflect typical outcomes and can vary widely based on fund performance, individual contribution, and timing of exits. At senior levels, annual compensation can fluctuate significantly year to year due to the long-term nature of private equity investing and carry realization.