More and more candidates ask me every year whether they need to get an MBA to progress in private equity. But while getting an MBA used to be a given in PE, it is much less so now.
Until relatively recently, you needed an MBA to advance in private equity - even if you were already working in the industry. Specifically, if you were an Associate at a PE firm, you’d be required to leave and get an MBA before progressing further in your private equity career. Once completing your MBA, you would be hired by a PE firm as Vice President (in some cases Senior Associate), but it meant hitting pause on your career while continuing your education.
But MBA requirements seem to be loosening up with each passing year.
Does everyone in PE have an MBA? Not any more…
It’s still true that larger, more prestigious PE firms tend to prefer hiring MBA graduates for their VP levels (and above). Even at the largest mega funds, however, the non-core teams, such as infrastructure or private credit, have started to relax the MBA requirement. Many middle-market and lower-middle market private equity firms have eliminated the requirement altogether. Why?
- There has been a proliferation in the number of PE firms over the past 20 years. According to McKinsey, there are around 7,000 private equity firms operating in the U.S., versus just under 1,500 in 2000. A myriad of large and small firms covering a variety of sectors, strategies and geographies cropped up that prioritize particular skill sets, backgrounds or even personal drive over an MBA
- Many of these firms’ founders rose through the ranks without an MBA, so requiring it from the junior ranks is seen as contradictory
What is the dollar value of an MBA?
All of this poses the question of how you decide whether to pursue that vaunted degree if private equity is your end goal.
First, let’s consider the financial impact. If you enrol full-time, tuition and living expenses can amount to around $200,000. Add two years of foregone wages and the opportunity cost is significant.
Presumably, investing in an MBA will pay for itself in a few years - especially if you land a lucrative role with some hefty carried interest (deferred compensation in non-PE parlance). To put real numbers around this, I canvassed a few dozen Senior Associates and VPs in private equity investing roles.
I had expected to see MBA graduates edge out their non-MBA peers in comp, but was surprised when the data showed similar earning levels for both groups. (Bear in mind that this was a decidedly unscientific sampling of PE professionals across a wide swath of fund sizes and geographies.)
