Compensation levels in private equity and venture capital continued trending upward in 2020, according to two reports published by Holt Private Equity Consultants, MM&K and PEI Media. Data for the surveys are collected in April each year, meaning the 2020 edition reflects a pre-covid financial climate.
“Compensation all comes down to fundraising,” says Mike Holt, author of the North American survey. “If fundraising is good, management fees are good, and firms can increase salaries and bonuses.”
Fundraising set a record in 2019, leading to an increase in compensation across the board in 2020. In 2019, private equity firms raised $663 billion globally, according to PEI data. Despite the pandemic, firms raised $535.2 billion last year.
“The reports indicate just how healthy the European VC and buyout markets are,” says Nigel Mills, director of MM&K. “In terms of remuneration, the private equity industry wasn’t really negatively affected by covid – possibly completely the opposite.”
Compensation levels took a significant hit in the years following the global financial crisis, but covid-19 is unlikely to have such a drastic effect, says Gail McManus, founder and managing director of Private Equity Recruitment. PE salaries and bonuses are likely to remain “muted but stable”.
Global turmoil aside, private equity base salaries and bonuses generally see relatively little upward or downward fluctuation, demonstrating “remarkable stability over the years, even over the decades”, says Simon Havers, a consultant at executive search firm Odgers Berndtson.
“I think that’s partly pinned down by limited partners’ expectations that salary levels should be set at a place that allows people to live but not to get too rich,” Havers says. “They don’t want to see people getting rich without making carried interest.”
Despite significant growth in 2019, North American firms were wary of expanding staff in 2020 due to the pandemic.
Only 25 percent of LBO and growth equity firms projected a staffing increase among partner-level investment professionals, compared with 46 percent the previous year. In 2020, 13 percent fewer firms predicted an increase in non-partners than in 2019. In Europe and the UK, however, numbers remained relatively stable.
“It has largely been business as usual on that front,” says Havers. He expects to see an uptick in movement from “candidates who one would not have expected to be open to moving”, particularly investment professionals who, thanks to poor portfolio valuations, no longer find themselves tied down by potential future carry payouts.
Hiring freezes caused a sharp decline in staffing changes in Q1 2020, according to executive search firm Heidrick & Struggles. However, recruitment bounced back for the remainder of the year, with an increasing number of firms seeking tech-savvy operating partners and investment professionals.
While hiring managers may still be on the lookout for new talent, the additional risk associated with switching firms will put off some candidates, says Private Equity Recruitment’s McManus. The resulting competition between firms could see compensation rising. “The aspect of compensation that really influences people moving is their perception of differentials within their firms. They want to know what the person sitting next to them is being paid and that they’re being paid fairly compared to their peers.”
The MM&K – Holt – PEI Private Equity and Venture Capital Compensation Report is a joint effort of three parties. They are compensation consultants MM&K in London, Holt Private Equity Consultants in North America and PEI Media.
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In Europe: Nigel Mills
Nigel.Mills@mm-k.com, +44 20 7283 7200
In North America: Mike Holt
Mike.Holt@HoltPrivateEquityCompensation.com, +1 239 594 5530