The price of success

A flood of money and increased competition has pushed compensation higher across the board. Are you paying your team enough, Nicholas Lockley asks?

Compensation in private equity firms rose last year across the board as capital poured into all classes of private equity including buyouts, venture capital and fund of funds, according to Thomson Financial have 2007 Private Equity Compensation Report in association with Glocap Search.

The recordbreaking fundraising by several large buyout growth equity funds, which the report defines as those with over $3.5 billion, led to a heightened demand for professionals to help invest those funds driving compensation higher, the report said.

That demand had a trickle-down effect throughout the industry pushing compensation up at the mid- to largersized funds which had to keep pace if they wanted to attract top talent and retain their own professionals.

Competition from hedge funds, which continued to lure away some of the same talent, was another factor that drove compensation higher, the report said.

Positions that are considered to be the future leaders of buyout/growth equity firms—the senior associates, VPs and principals enjoyed the biggest gains in compensation at those firms as total average compensation rose 16, 18 and nine percent, respectively.

Large buyout funds are now paying senior associates straight from business school $375,000 in total compensation.

In addition to matching compensation levels of buyouts funds, some large VC funds are also implementing a more bonus heavy structure.

Larger fund of funds, which have been pursuing increased coinvestment activities, are starting to demand more of an analytical investment skill set and are thus having to increase compensation to compete with private equity funds for that talent.

Bonuses for senior associates at fund of funds rose 18% with the biggest increase at 28 percent coming at funds with $1.5 billion or more.