The 2011 Private Equity Compensation Report revealed positive momentum in the area of private equity and VC compensation.
At the end of 2010, 45 percent of private equity career professionals expect their compensation to grow by double-digits over last year. The average increase was 13 percent during a time when the number of deals getting done isn’t back to pre-peak levels but the biggest firms are pricing each other out of some deals.
Private equity professionals reported average cash earnings near $230,000 and a big part of that number is bonuses. Investors need not fret, however, as it seems bonus practices for 2010 are in line with fund performance. Speaking of fund peformance, this year 85 percent reported their funds were in the black.
Bonus guarantees play a role in hiring and keeping top investment talent. 28 percent reported having some guarantee as part of their private equity compensation package. That guarantee could range from very little to one hundred percent and a small portion of the respondents said they were required to invest back into the fund.
In 2011, expect more deals and greater demand for talent from both the investment and operational sides of the business. Why? With big reserves at the larger firms and a closing investment window, firms need to invest those dollars and that will required private equity talent both pre and post investment.
The report covers base and bonus compensation (both by title and by fund size), fund performance and its impact on bonus levels, the sharing of carried interest, and job security concerns. The Report also seeks to understand how private equity professionals perceive their work and what they expect from their employers.
Data was collected directly from hundreds of private equity and venture capital partners and employees at the end of 2010 to pull together the 2011 report. A sample of the report can be found at www.PrivateEquityCompensation.com.
You are invited to participate in Job Search Digest’s annual Private Equity and Venture Capital Compensation Survey, which we are conducting to provide information to evaluate compensation, negotiate better job offers, and benchmark firm compensation practices.
Last year hundreds of respondents from around the world completed the survey. We had participation from firms both large and small such as: Credit Suisse, Labrador Ventures, Intel Capital, Mayfield, New Enterprise Associates, and SoftBank Capital. The survey addresses issues such as the compensation earned by professionals and their work satisfaction.
A Few of Last Year’s Findings:
- Many respondents said they were concerned about their firm’s ability to raise the next fund. An anemic IPO market makes it harder to present investors with a clear path to a successful exit.
- It turns out that size does matter. Funds in the mid range raised the bar when it comes to private equity compensation.
- Working hard does pay off. An interesting finding in looking at private equity work and personal life balance is that there is a direct correlation between hours worked and total compensation earned.
Follow this link to participate in the annual Private Equity and Venture Capital survey.
Many private equity firms grew too large and were overpaid at the peak of the economic boom, and that’s going to lead to structural changes in the industry. So says private equity manager Guy Hands in a recent interview with the New York Times.
Hands is well known for his own unfortunate $4.73 billion purchase of record company EMI in March of 2007, a move that will likely cost his investors and his PE firm, Terra Firma, millions, if not billions in losses. Now he is desperately trying to keep the business afloat while delivering vast interest payments to the banks that financed the transaction, most notably, Citigroup.
Hands comments that many funds grew so large during the peak that their 2 percent management fee became just as important as the 20 percent cut of performance. Success had less to do with performance than simply bulking up on assets. And managers did not use the excess fees to invest in resources and grow the skill base of their funds.
Now he sees the industry beginning to contract, as firms struggle to raise enough new money (and corresponding fees) to support the hundreds of people they already employ. It is similar to what happened in the venture capital industry in the late 1990s, when investors realized too much money was chasing too few deals.
