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Wealth Management for Private Equity Professionals

private equity wealth management


Although many early career private equity professionals fall into the HENRY (high-earner-not-yet-rich) category, the access to investment opportunities their job provides creates unique planning considerations. The need to manage liquidity results in different investing strategies throughout their career. This post will outline a framework for creating a plan that addresses these specific considerations.

Risk Tolerance

In wealth management, we often separate risk tolerance into two categories – willingness to take risk, and ability to take risk. Generally, private equity professionals have a high willingness to take risk, as their job is to evaluate potential investments, take calculated risks when the potential risk and reward fit the fund’s objectives.

Typically, one’s ability to take risk will depend on liquidity needs – which often are driven by how far along you are in your career. Early in your career, you will likely want to opt for a less risky portfolio in order to meet capital calls. Later in your career, when you can easily fund your liabilities during a risk asset drawdown, your ability to take risk in your public market portfolio is higher.

Investment Opportunities

Investing in your Firm’s Funds

When you invest in your firm’s fund, it is paramount that you manage your liquidity needs so that you can meet capital calls. If your public market portfolio is aggressively invested and you rely upon the value of said portfolio to satisfy capital calls, you may be forced to liquidate securities at an inopportune time (i.e., during a substantial drawdown). In our view, a more prudent strategy is to match your assets with your future liabilities, investing conservatively in a portfolio heavier in fixed income. With this foundation secured, the remainder can be invested in riskier securities.

Carried Interest

Carried interest can be a significant portion of your expected compensation and an important factor in developing your financial plan. While it may be tempting to match your future expected liabilities (capital calls) with expected carried interest income, we advocate for a more conservative approach, because the income is not guaranteed. Additionally, carried interest creates the need for a plan to invest lump sum inflows, as is discussed in the next section.

Investing Cash Inflows

Whether it is a year end bonus, carried interest compensation, or a waterfall payout – you need to have a plan for investing large cash inflows. At Invariant, we advocate for creating a plan that mitigates potential behavioral errors. The plan will typically look like one of the following:

1) Invest the proceeds in a risk-appropriate portfolio at the time of the inflow.

2) Create a defined timeline to dollar-cost-average into a risk-appropriate portfolio, retaining the option to do it all at once in the event of the market sell off.

We find that these plans strike a balance between managing the potential concerns of investing at an inopportune time, while mitigating the risk of remaining in cash waiting for a drawdown while markets continue to go higher.

The Bottom Line

Private equity professionals have access to vehicles for potential wealth creation that many others do not. By creating a plan to manage your liquidity needs from the beginning of your career, you give yourself the best possibility to capitalize on these opportunities. If you are a private equity professional looking for guidance on creating a financial plan, the team at Invariant Investments would be thrilled to work with you.


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