Carried interest continues to be a topic of discussion among certain elected officials.  The Obama Administration’s 2015 budget recommendations included a proposal to tax gains from carried interest at the personal income tax rate as opposed to the current capital gains tax rate. If Congress went along with the Obama Administration’s tax increase proposal, the tax increase would amount to about $28 billion over the next ten years.

Here are the results of a recent survey by regarding carried interest.

After the profit realization of the fund, carried interest is distributed to private equity or venture capital professionals, based on their individual share of the fee, which is known as the personal carry. In general, carried interest allocations are around 20 percent (most common as indicated by 45 percent of firms responding to the survey) of a given fund’s profit among private equity and venture capital firms.  Following the standard 20% are funds with less than 20%, making up 43% of the total. Lastly, only about 12% of fund operate with more than 20% as its carried interest pool.

size of carried interest

Interesting, although there appeared to be many discussions about the private equity industry moving away from the 2 and 20 carried management fee/carried interest standard,’s survey results found no evidence of any real shift in the structure of the carried interest pool.

What two factors determine whether a private equity professional will participate in a carried interest pool and how much of a share they will receive? It appears that years of experience with the firm and their seniority within the firm are leading criteria for carried interest pool participation, based upon’s survey results.

On top are professionals in the 10 to 15 years of experience category at a little over 70%.  Following the 10 to 15 years of experience category are individuals with 20 or more years of experience and individuals with 16 to 19 years of experience at around 65%.  On the other end of the scale, individuals with less than five years of experience have the least carry percentage.  Private equity and venture capital professionals with 2 to 5 years are at a little less than 30%, while individuals with less than 2 years of experience are at around 20%.

carried interest experience

The survey results also found that associates and senior associates saw their participation rate fall, being increasingly left out on the sidelines.  While in contrast, senior professionals such as Partners, Managing Directors, and Vice Presidents continued to enjoy regular participation in the carried interest allocation.

Overall, carried interest continues to be a central tenant of private equity and venture capital compensation.  Perhaps unfortunately, some elected officials seem to think that a larger portion of this compensation should belong to the federal government.


With minimum wage laws a topic of policy discussion recently, this article asks the question –is there a correlation between higher minimum wage rates and financial employment by state?

The main theory is that states with financial centers may get pressure from the public to increase the minimum wage above what elected officials experience in other states because of the idea that financial professionals are overpaid.  As the theory goes, because financial professionals are overpaid, why not help out the least off by taking from the “rich” financiers.  Before addressing whether any relationship exists, here’s some background.

The federal minimum wage was first imposed at $0.25 per hour in 1938.  Since that time, the minimum wage has grown to $7.25 in 2014, an increase of 2,800, or about 4.5% per annum.  Interestingly, the 4.5% average annual growth rate in is about a percent higher than economy-wide average annual wages.

Federal Minimum Wage

In its history, on an annual basis, the federal minimum wage has been bumped up 25 times.  The largest increases happened in 2007, 2008, and 2009, when the minimum wage increased $0.70 each year, going from $5.15 in 2006, to $5.85 in 2007, to $6.55 in 2008, and $7.25 in 2009.

Besides the methodical three-year increase in the minimum wage from 2007 to 2009, increases have been sporadic, akin to most political decisions.

Increases in the Federal Minimum Wage

The federal minimum wage is, of course, only part of the story.  States have the option of increasing, but not lowering, minimum wage rates for most employees.

As of 2014, 24 states have a minimum wage that’s higher than the federally imposed rate.  Highest among the states is Washington at $2.07 above the federal level, followed by Oregon at $1.85, Vermont at $1.48, and Connecticut at $1.45.  (Isn’t it interesting that less than half of U.S. states have found it prudent to increase the minimum wage above that which the federal government imposes.)

Minimum Wage by State, 2014 (1)

Changes in the minimum wage rates at the state level are also seemingly random.  The following is a plot of changes in the minimum wage rates by state across time.  (As a note, the details by state are not meant to be decipherable, rather just the clustering of changes by state.)

The first state to risk a minimum wage above the federal standard was Alaska at $0.50 in 1960.  Alaska was followed by the District of Columbia, Connecticut, and Massachusetts.  Interestingly, Alaska’s $0.50 difference from the federal government continues to this day.

Also interesting to note is the slew of states imposing higher minimum wage laws in 2006 and 2007, at the peak of the housing market boom.

Differences in the Minimum Wage Rates by State from 1938 to 2014

With this minimum wage background in mind, the next part of the question is – where is financial employment clustered in the United States? The following has that plot, which shows the percentage of total employment in a given state employed in the financial industry. On top of the financial industry centers is Delaware, with 10.1% of employment from financial businesses headquartered there.  Delaware is followed by Connecticut at 8.1%, New York at 7.8%, and Nebraska at 7.4%.

On the other end, the financial industry has not, relatively speaking, set up shop in West Virginia, with only 3.7% of total employment working in the financial industry.  Other states with less financial industry influence include Wyoming at 3.7%, Vermont at 4.0%, Alaska at 4.0%, and Mississippi at 4.0%.

Financial Industry Employment Concentration by State

So, what does the connection look like between financial industry-concentrated states and states with high minimum wage laws? Here’s a scatterplot look. Interestingly, not only are the two not related, the linear regression line indicates the opposite conclusion – financial center states generally do not impose higher minimum wage laws.  As a note, the regression line is not statistically significant.

Scatterplot of State Minimum Wage Laws and Financial Employment by State

The conclusion that there is no relationship between a given state’s minimum wage and financial employment may surprise some observers, given the political nature of the discussion, but it’s true.


Individuals in the private equity industry work a lot.  They also make a lot for those long hours.

If one divided working individuals into 10 hour groups – meaning some percentage of individuals work 40 to 49 hours per week and some individuals work say 80 to 89 hours per week – which hour group would you guess is the most common?  Which group would you guess is the least common?

Here’s what the data look like.

In terms of percentage of total, individuals working 50 to 59 hours per week represent the largest group at 37% of the total.  Following this group are individuals working 60 to 69 hours per week at 35%.

The remaining 28% of individuals are grouped as follows:

  • Individuals working 70 to 79 hours per week at 11%;
  • Individuals working 40 to 49 hours per week at 8%;
  • Individuals working 80 to 89 hours per week at 6%;
  • Individuals working 90+ hours per week at 2%; and
  • Individuals working less than 40 hours per week 1%.
Percentage of Total Private Equity Employment by Hours Worked Source:


How do these working hours worked connect with annual compensation?  Would you guess private equity professionals working the most – i.e. 90+ hours per week – make the most?  Would you guess individuals working less than 40 hours per week – i.e. individuals running the show – make the least?

Here’s what the data look like.

Interestingly, on top of the annual compensation pyramid is individuals working 70 to 79 hours per week at $308,000 per year.  Following them are individuals working 60 to 69 hours per week, bringing in $291,000 annually.

The remainder of the survey results are as follows:

  • Individuals working 40 to 49 hours per week at $285,000 annually;
  • Individuals working 80 to 89 hours per week at $251,000 annually;
  • Individuals working 90+ hours per week at $239,000 annually;
  • Individuals working 50 to 59 hours per week at $233,000 annually; and
  • Individuals working less than 40 hours per week at $183,000 annually.
Pay by Hours Worked per Week Source:

So, the sweet spot for being on top is 70 to 79 hours per week, with the next highest at 60 to 69 hours per week.

What does this mean?  A few observations.

First, by and large, the reward for being a successful private equity professional is not devoting less of one’s life to one’s working life, but rather, more.  The most highly compensated private equity professionals spend 14 or 15 hours per day evaluating or managing deals, whereas those spending perhaps 8 or so hours for only five days per week receive lower compensation.

Second, to be successful in the private equity universe, one likely will be devoting at least 50 hours every week to one’s working life.

Overall, private equity professionals working 70 to 79 hours per week generally make the most per year at an average of $308,000 per year, essentially spending most of their waking lives looking for or managing private equity investments.


When will Venture Capital Firms Move Away from California?

March 10, 2014

Since at least the 1980s, a large, disproportionate share of venture capital investments have been made in firms located in California. When will this trend come to an end? First, here is some background.  The following animated GIF shows venture capital investments by year by state since 1995 (a link to the interactive Tableau Public […]

Read the full article →

Where Did Successful VC-Backed Entrepreneurs Go To School?

February 24, 2014

If you were asked where the most venture capital backed entrepreneurs went to college, which universities would show up in your top five? As a guess, you would most likely put the Massachusetts Institute of Technology high, as well as perhaps Stanford, Harvard, and other Ivy League or high academic schools.  After all, that’s where […]

Read the full article →

Chicago Booth Private Equity Conference

February 17, 2014

On February 21, the Chicago Booth Private Equity Group and the Polsky Center for Entrepreneurship and Innovation are hosting the 13th Annual Beecken Petty O’Keefe & Company Private Equity Conference. The event brings together financiers, students, and entrepreneurs to network and share insights into the dynamics of investing in a constantly changing economy. This year’s […]

Read the full article →

NYU Stern Private Equity Conference

February 10, 2014

Finding Alpha, Navigating Investment Headwinds in Private Equity The Annual NYU Stern Private Equity Conference provides current students, alumni, and industry professionals with networking opportunities and panel discussions focusing on trends and issues facing the private equity and venture capital industries. The popular conference attracts nearly 400 attendees each year. This year, the Conference will […]

Read the full article →

Private Equity Conference at Columbia Business School

January 29, 2014

On February 28, Columbia Business School will hold its 20th Annual Private Equity & Venture Capital conference entitled “Driving Entrepreneurial Thinking in the World of Investing” at the Sheraton Times Square New York. For twenty years, Columbia Business School has brought together thousands of private equity and venture capital professionals to its annual conference to […]

Read the full article →

What Will CalPERS’ Reallocation Plan Mean for Private Equity?

January 27, 2014

In mid-December, Real Desrochers, senior investment officer for the California Public Employees’ Retirement System (CalPERS) fund, indicated that CalPERS would reduce the number of private equity investments from 389 to 120.  The reason for the strategy announcement:  the CalPERS board felt it is currently over-diversified, making it difficult for CalPERs to generate above-median returns.  What does […]

Read the full article →

The Impact of Crowdfunding on Venture Capital

January 13, 2014

There have been some interesting developments from the American Jobs Act. One of the most recent developments is in equity crowdfunding. Crowdfunding, as most of you know, has been around for some time… at least since the late nineties. It is dominated by donation or awards platforms. There are also platforms geared to start ups. […]

Read the full article →
Real Time Web Analytics