Employees in private equity firms can expect higher bonuses by year-end, research from a compensation consultancy has found.
PE professionals could see as much as a 5 percent increase in incentives and equity compared with last year, according to a report from New York-based Johnson Associates. Healthy fundraising levels – especially from several US mega-buyout funds – coupled with the industry’s stable performance, should drive the rise.
The 2019 Financial Services Compensation report also found a growing practice among private equity firms to delay and differentiate carry allocations. Firms that participated in the study are awarding between 20 percent and 25 percent of carry allocation per year versus the typical 80-85 percent awarded upfront.
Across the alternatives industry, employees in real estate firms and hedge funds are also expected to see their incentives rise by as much as 5 percent. Investment and commercial bankers, on the other hand, could see their bonuses decrease between 5 percent and 10 percent as banks downsize. The downward trend is mainly due to a drop in underwriting and trading activity.
Geopolitical tension, interest rates and market volatility continue to be key factors that will determine 2019 incentives, the report noted.
One managing director of a London-based executive search firm said data on compensation in the industry is difficult to ascertain.
“Private equity bonuses are hard to get useful data on and to say PE is getting a 5 percent increase is simply a generalisation,” the MD said, highlighting that there is a wide variation among funds.
According to research by consultancy firm Holt and sister publication Buyouts published last month, median salary for partners at North America private equity and venture capital firms increased 11 percent year-on-year to 2019. Partner salary and bonus shot up 13 percent, while salary, bonus and carried interest rose 30 percent.
The managing partner of a New York-based recruitment firm said the size of a firm’s fund typically determines employee compensation. Firms with funds larger than $7 billion always pay bonuses “in the top bucket”, while mid- to smaller sized funds do not – especially if they are struggling with fundraising.
“While the markets are strong, I don’t think compensation is accelerating this year as it might have been for 2018,” the managing partner said.
For the finance industry in 2020, incentives for employees will moderately decrease as competition, product shifting and fee levels squeeze average performers, Johnson’s report noted. Downsizing is also expected to continue affecting operations, low/mid-level technology and middle management.
Some firms may also experience difficulty in creating value and see a “bubble” in wages of high-end technology and analytics professionals. Movement out of New York, Boston and San Francisco is also expected due to high business costs, individual taxes and housing, according to the report.
– Adam Le contributed to this report.