The assets under management of leading investment firms have swelled in recent years, and billion-dollar funds are now commonplace. Much attention has been paid to how they behave distinctly from other players in the market—whether that be by influencing deal terms or pushing valuations skyward.

It turns out these mammoth players are different on the inside, too. The largest cohort of investment firms takes an approach to compensation that is distinct from the rest of the market, according to the results from the Thelander-PitchBook Investment Firm Compensation Survey, which includes data from more than 1,500 global investment firms.

Firms with over $1 billion in AUM approach compensation differently for a few reasons. They earn more in management fees and can be therefore more generous. Higher cash salaries could be tied to the requirement that partners contribute capital for their carried interest. Lastly, larger funds demand more seasoned talent—and are willing to pay for it.
   
Firms that manage more than $6 billion in total AUM pay managing directors and partners a median of $803,000 in cash compensation, 24% more than the median cash salary at firms managing between $2 billion and $5.9 billion.

The largest firms also have shorter vesting schedules for investment professionals. At firms managing $6 billion or more, the most common vesting schedule is three to four years, compared with seven to eight years at firms managing between $1 billion and $1.9 billion.

"Larger firms have bigger management fees and therefore more runway to compensate their teams," said Jody Thelander, CEO and founder of J. Thelander Consulting.

Another possible reason for the difference in cash pay is that large firms require more seasoned—and therefore expensive—talent. Finally, higher salaries could be designed to supply investment professionals with money that they need to contribute in order to earn their carried interest, Thelander added.

The habits of large fund managers are significant in part because they command an increasingly large share of capital in the market. In the first half of 2020, funds with $1 billion or more in commitments represented 73.4% of all fundraising in private markets globally, according to PitchBook data.

The largest firms pay their investment professionals a smaller percentage of carried interest, but that percentage is based on a much larger pool of potential returns. GPs typically earn around 20% of their investment profits as carried interest and pay the rest out to LPs.

For more content related to private company and investment firm compensation, check out other articles we've published with J.Thelander Consulting or contact Thelander directly.

The Thelander-PitchBook Investment Firm Compensation Survey covers base salary, bonuses, carried interest, diversity, equity and inclusion and more for 75+ positions from entry-level analysts to managing general partners.

There is no cost to participate, and all respondents will receive free access to a subset of the results on the Thelander online platform through a Silver Level subscription. All data is published in aggregate only with no individual or firm names reported. With more than 1,500 investment firms across the globe, don't miss your chance to participate today.

Featured image by Drew Sanders/PitchBook News

This article originally appeared on PitchBook News