PE and VC firms scale back bonuses as covid-19 takes toll

MM&K recently conducted its annual Pulse Survey of the latest trends in the world of PE and VC fund managers’ pay and staffing levels. Perhaps not surprisingly, many firms were somewhat distracted by the lockdown and the effect it was having on their staff and working patterns.

Notwithstanding this, we were able to gather a reasonable amount of data, sufficient to make the following assessments:

1. Just one-third of firms saw some increases in the bonus levels for their non-partner investment professionals compared with 2019, and these increases tended not to be significant. For most firms, bonuses stayed pretty much at the same level for investment directors, associates and analysts.
2. An even smaller percentage of firms saw any upward movement for partners.
3. Sixty-seven percent of firms indicated they were expecting to increase the number of their associates and analysts during 2020, while half of the firms were expecting to increase the numbers of their investment directors and junior partners.
4. These statistics contrast with the situation with administrative/support staff, where only 15 percent of firms are expecting to increase their numbers.

All the firms that participated in this survey did so after the scale of the covid-19 pandemic was well known.

From our 2019 survey, 54 percent of PE and VC firms said they pay their annual bonuses either in December or January, while another 31 percent pay them in February or March. From what we have heard in the industry, for those firms that did not pay their bonuses until March, many of them did decide to scale back their bonuses because of covid-19, so we are not that surprised by the bonus statistics shown above.

One important stated reason for scaling back bonuses was the recognition by firms that they were going to need to recruit more staff, particularly at the associate and analyst levels, to help deal with the additional workload the covid-19 pandemic was going to bring in. This additional workload, which was becoming evident, was being driven by two factors: one relating to the need to monitor more closely and provide extra support to existing portfolio companies; the other, the need to research, identify and carry out due diligence and execute new deal opportunities that were expected to be coming up (albeit later in the year) at potentially attractive prices.

There is no question that the first of these factors started to happen some time ago, during March. However, the jury is out as to when or whether the covid-19 pandemic will result in lots of new deal opportunities coming through at attractively low prices. Some new deals are happening at the moment, but not that many, and certainly less than in 2019. We expect Q3 will remain relatively quiet with Q4 seeing some opportunistic buying by those houses that are willing to take a bigger risk than normal. Much will depend on whether the easing of lockdown in western Europe continues successfully without any new spikes and with increasing confidence returning to markets and to the deal doers.

We are starting to see some evidence of firms going out into the market to recruit new associates and analysts, although we expect this trend to increase towards the end of Q3 when there may be much greater clarity about the long-term effects of the virus on businesses and the economy generally, and when the new deal opportunities will really start to appear.

And of course, if this trend does continue, it will be interesting to see what effect this will have on the pay levels for those more junior investment professionals.

The 2020 MM&K/Holt European PE and VC Compensation Survey Report, which is supported by PEI Media, should shed some light on this question, as well as on many others, when it is published in October.

For further information about the issues raised in this article or to discuss any questions you may have, please contact Nigel Mills – Nigel.Mills@mm-k.com Tel: +44 20 7283 7200

MM&K’s 2020 UK and European Private Equity / Venture Capital Compensation Survey

MM&K has launched its 25th annual Compensation Survey for the European Private Equity and Venture Capital Industry. The 2020 Survey will provide participants with information on both quantum and structure in respect of salary, bonus plans, carried interest plans and co-investment plans. Through participation in our survey, participants will obtain data which allows them to:

• Make the best choices on remuneration structures for their businesses

• Have meaningful conversations on remuneration with partners and employees

• Improve staff retention and morale

If you are working in a private equity, infrastructure or venture capital house and you believe that your firm might like to participate, contact Nigel Mills – Nigel.Mills@mm-k.com Tel: +44 20 7283 7200