Guy Hands of Terra Firma predicts that compensation for private equity professionals may drop by up to 75% due to effects from the credit crunch as firms take longer to invest their funds. Hands’ prediction is based on an assumption that private equity firms will own the assets they buy for an average of eight years, twice as long as before. Hands is also expecting firms to take longer to invest the funds they raise, perhaps up to four years as compared to a two year average that many large firms had reached before the credit crunch.
75% seems like an excessively high number especially when compared to how compensation faired in other down cycles for private equity (such as when the junk bond market fell apart). That being said there is likely to be some negative movement until things pick up again. What a great time to be graduating!