For private equity professionals, personal wealth can look very different to that of other high-net-worth individuals (HNWIs). The majority of their wealth tends to be illiquid, with a significant proportion of their personal cash often tied up in their fund. Their cash flow also changes over time as carried interest is realised and fund distributions occur – which for many, can be years away.

Given the sums at stake can be substantial, the risks of not having proper wealth advice can lead to a wide range of challenges, from future wealth creation and managing the impact of tax and inflation, to borrowing to buy property or even keeping the estate intact beyond their lifetimes.

Nick Ritchie, director, wealth planning for RBC Wealth Management in the British Isles

One of the biggest challenges is a less than ordinary remuneration structure. “These individuals get paid in a number of different ways," said Nick Ritchie, director, wealth planning for RBC Wealth Management in the British Isles.

Alongside a base salary, private equity professionals may receive a share of fund management fees, gains from co-investments and carried interest on successful exits - (a payment for investment services that is taken out of the profits of the money managed for investors). “A lot of this simply isn't recognised or accounted for by high street banks and even many private banks and wealth managers, so this means establishing a financial profile for the purpose of obtaining credit and accessing other financial services can be difficult," Mr Ritchie explained.

So what can private equity professionals do to ensure their wealth plans are on the right track?

1. Rethink the search for yield

It's common for private equity professionals to hold pots of cash to meet upcoming needs, such as future commitments to their funds, tax bills or deposits on property purchases.

But with such a disparity between the current rate of inflation and yield on cash, it can be challenging to avoid erosion of capital. This is especially relevant for cash sums earmarked for a tax payment in as much as nine, 12 or even 18 months' time – not an uncommon occurrence.

“One of the conversations we are having is, 'Are there ways to help limit the need private equity professionals have to hold substantial cash in the first place?'" said Mr Ritchie.

There are ways to increase the yield on the cash they do hold, such as investing in short-term fixed income instruments, capital protected structured products and cash enhancement strategies. “Pricing looks especially attractive on these instruments while the market expectation is for inflation to persist and central banks to continue hiking rates,” Mr Ritchie added.

2. Consider your wider needs when obtaining a mortgage

With such a high proportion of earnings derived from carried interest – and given the largely illiquid nature of their asset base – most banks are unable to lend sufficient sums to private equity executives to meet their property purchase aspirations.

Lenders that can take into account carried interest when assessing a mortgage and have the ability to lend a high loan to value against a property are in a strong position to add value. In particular, a high loan to value mortgage effectively translates to a much smaller deposit, enabling these professionals to remain prepared for opportunities for further investment into their fund or elsewhere.

3. Handle tax obligations intelligently

The tax obligations of private equity professionals include addressing "carried interest" from specific transactions.

Oliver Saiman, head, private equity professionals at RBC Wealth Management in the British Isles

"With carried interest generally forming the largest portion of a private equity professional's earnings, understanding what reliefs are available can help to maximise the value of the payment and defer gains to a later date or indefinitely in some cases," said Oliver Saiman, head, private equity professionals at RBC Wealth Management in the British Isles.

In the UK, those carried interest realisations are treated as capital gains and taxed at a current top rate of 28 percent. Reinvesting gains in companies accessing finance under the Enterprise Investment Scheme (EIS) offers a way to defer a capital gain, if qualifying criteria are met. These investments also allow the investor to potentially reclaim 30 percent of their total investment against their income tax liability.

4. Establish an estate plan

With a demanding work schedule and little free time, for private equity professionals, estate planning is often overlooked. Establishing a clear plan deserves adequate attention so loved ones are protected in the case of a life-changing event, such as illness or death. If death occurs early and an estate plan has not been sufficiently addressed, heirs could be subject to huge tax burdens or unprepared to manage major financial decisions. And these professionals typically have significant lifestyle expenses and limited personal liquidity outside of their fund commitments, making it a complex situation for a family to manage.

In one example, a principal of a private equity fund and his wife came to RBC, concerned about how the family would pay for life's expenses if anything were to happen to the husband prior to future carried interest being realised. “The concept of high value life insurance was introduced to plug that gap," said Mr Ritchie. “That way the couple knew they could cover the mortgage on their property and pay their children's school fees all the way through to university.

“That conversation highlighted a blind spot for the client and the solution will relieve a huge burden at a very emotionally straining time."

With the help of advisers who understand their unique personal finance structure, private equity professionals can avoid critical missteps, take advantage of their unique earning power, and ultimately free up time to focus on what matters to them.