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It seems the U.S. private equity industry has reached a mature stage with the number of new firms launching stabilized, billions of dollars of capital ready to invest (so-called, “dry powder”) and ownership of thousands of U.S. companies.
2011 brought with it plenty of fund raising activity and it was clear from the respondents that the success of that activity was all over the board. The smaller funds continue to do most of the fund raising activity, while the larger funds continue to scoop up most the money (and are holding more than they invest).
Yet, the typical private equity firm (in terms of numbers) is anything but large and might only be on their first or second fund, with a most recent fund size of less than $500 million.
Even how these firms manage their investments seems more settled and focused on a longer timeline. Private equity firms are no longer keeping their portfolio companies for just a few years and then exiting. A buy, build and hold strategy is now the norm, which translates into the need for a different type of talent than demanded during the peak years.
Gone are the days when firms concentrated their efforts on financial engineering to the exclusion of operational improvements. Now, it’s about increasing portfolio company revenues and reducing costs. Operational management is back in favor and is requiring both job candidates and the firms to rethink the required skill sets for success.
Last year we mentioned another industry trend to watch – the demand for internal fundraising team members. Fund managers are looking to broaden their investor base due to many investors directing new fund investments to more established funds. Firms are looking for individuals with proven capital raising experience and close Limited Partner relationships to help in that effort. This year, 9 percent of those with marketing and fund raising responsibilities identified themselves as dedicated solely to that activity.
So, what exactly does this more mature private equity and VC industry mean for those professional who earn their living from it?
2011 brought with it a solid level of earnings for most private equity and VC professionals. Compensation for just about every partner and employee at the firm is up and many are enjoying double digit increases in total compensation.
A segment of respondents stated they did not expect an increase in their overall compensation but for those who did, the average expected increase over last year was a very healthy 26 percent. Again this year, more than 40 percent expected double digit increases over last year.
For firms with 25 employees or less, we saw an overall higher average total compensation than in 2010. We believe that this was driven by the increased demand for private equity talent in the larger firms and the need for the smaller firms to keep pace in order not to lose their most talented players.
We believe this upward compensation trend will continue in 2012.
This year’s compensation report is primarily made up of responses from North America and the U.K., with about a 30 percent representing senior level positions and 40 percent representing mid-level positions.
Some of the highlights from this year’s report include:
To learn more about compensation trends and benchmarks, you can purchase this year’s private equity compensation report
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