The value of operating partners for private equity firms is increasing in Asia, with the level of compensation received by executives likely to rise accordingly, Michael Di Cicco, partner and head of private equity at research and consulting firm Heidrick & Struggles, told Private Equity International.
“We are seeing a lot more competition for operating partners,” he explains, following the release of Heidrick & Struggles’ Asia Private Equity Compensation Report, surveying 132 investment, operational and fundraising professionals within private equity fund platforms.
“The days of relying on inflation and growth to drive your investment returns are pretty much over, at least for now. What you’re seeing are funds that need to add value to the companies they invest into.”
While operating partners have traditionally not been compensated in a comparable way to investment professionals, this is likely to change as their role in driving returns continues to increase in importance, Di Cicco added.
“There is a greater awareness of their importance [and] I think it will be reflected in compensation. We are seeing more competition for these folks and so you will see greater ties into upside at some of these funds and we’re not just seeing it at global funds, but at significant regional funds as well.”
Panelists echoed this sentiment at the PEI Asia Forum 2014 in Hong Kong this week.
Serene Nah, senior operating executive and head of portfolio management at Silver Lake in Asia, told delegates that the firm's operating partners and investment partners are compensated in the same way in order to ensure the two sides of the team work together to deliver the best performance.
“In terms of structure and how you incentivise people to work together, we are all measured on the same thing. It is a global fund, we [are] all [in] the same carry pool so our focus is very simple: how do we get actually get a good investment, manage it in such a way that we are delivering value to it and how do we get to the return that we want to in the fastest possible way?”
Fellow speaker Alvin Lam, senior managing director of operations at CVC Capital Partners in Asia, said the same of his team, offering that all team members shared the same carry, whether focused on investments or operations.
However, not all firms have the same compensation model.
Unison Capital, which brings in operational advisors post-investment, offers stock options and the ability to invest in the fund, but typically provides fixed compensation, which is “not really huge”, Tatsuo Kawasaki, partner at Unison Capital, said.
“Both [sides] know that it is an interim position. So for those who want a more captive role, perhaps they would not come to us,” he added.
While there are differing opinions as to whether operational partners are widely contesting the pay discrepancies between their own and investment professionals, some believe the pay rate is fair.
Speaking the previous day at the PEI Asia Forum, Capital Dynamics founder Thomas Kubr said that despite complaints that operating partners receive less than their investment counterparts, he believed private equity professionals – both on the operations and deals side – are compensated at market value.