Private equity vs Hedge funds
Private equity holds a small number of private companies for years and is paid through carried interest when a fund returns capital. Hedge funds hold liquid positions they can exit any day and are paid annually on the book. Hedge fund cash is higher at both ends of the ladder and far less predictable. Private equity closes the gap through carry, which arrives years later or not at all.
Both buy things, and that is where the similarity ends. The difference that matters is how quickly you find out you were wrong. A private equity thesis takes five years to be proved or disproved. A hedge fund thesis is marked to market every afternoon, and so, in effect, are you.
By Surojit Chakraverti, founder of L3VLUP and an investor running a long-short healthcare and technology equities strategy.
Side by side
| Private equity | Hedge funds | |
|---|---|---|
| What you actually do | Diligence, model and negotiate the purchase of whole companies, then work with them for years. Perhaps two or three deals a year reach signing. | Build and defend a view on liquid securities, sized and risk-managed, and revisit it as the tape moves. Dozens of positions can be live at once. |
| Feedback loop | Years. You will not know whether your first investment was good until you are several levels more senior. | Daily. The book tells you what it thinks of your thesis before you have finished explaining it. |
| Job security | High by finance standards. Funds are small, hiring is deliberate, and a bad year does not usually end a career. | Lower, particularly at multi-manager platforms, where a sustained drawdown usually ends the seat outright. |
| How you get in | Almost always from banking, on-cycle, through headhunters, within the first two years of the analyst job. | From banking, equity research, or another fund. Off-cycle, less structured, and far more dependent on the pitch you bring than on the process you followed. |
| What good looks like | An investment committee memo other people can act on, and a portfolio company that runs better three years in. | A differentiated view that turns out to be right, sized correctly, at a point where the market disagreed with you. |
| Bottom of the ladder (total, midpoint) | £105k (Analyst) | £135k (Junior Analyst) |
| Top of the ladder (total, midpoint) | £925k (Partner) | £1m (Portfolio Manager) |
| What the cash leaves out | Carried interest is not in these numbers and is the reason people take the job. It typically starts around VP, vests over several years, and pays only when a fund returns capital, so a principal at a fund that underperforms can earn less over a decade than the bands suggest. | Every rung on this ladder is funded by P&L rather than by a bonus pool. The pod keeps a contractual share of its net profits, the portfolio manager takes theirs from it, and the analysts are paid out of the same pool at the manager’s discretion. That is why a good year and a bad year in the same seat differ by more than the entire base salary, and why a sustained drawdown usually ends the seat rather than shrinking the bonus. |
Pay figures are midpoints of aggregated, rounded bands. Full ladders: private equity and hedge funds.
Which one to pick
Private equity
Take private equity if you want to own something, prefer depth to breadth, and are comfortable being judged on work whose outcome arrives years later. It is also the more forgiving of the two if you are wrong occasionally.
Hedge funds
Take a hedge fund if you want to be right in public and paid for it quickly, and you can hold a view under daily contradiction. The upside at a single level is the highest in finance, and so is the variance.
Other comparisons
For open roles and deadlines across every one of these, see the opportunity tracker.