The guys over at Banker’s Ball have put together their first ever compensation report for banking and Private Equity (obviously we’re only concerned with the later numbers which appear on pages 11 through 13 of the report). The numbers are the results of a survey from their site. The title almost brings about a teary-eyed nostalgia to the bottles and models days of yesteryear…almost.
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!
The 2008 edition of the Private Equity Analyst-Holt Compensation Study has been released and it was a damn fine year.
Salaries for North American private equity professionals (I’m going to try and find some figures for Europe) rose 5.3% to $200,000 from $190,000 year-over-year. When bonuses are included, compensation rose by 25% to $375,000 from $300,000. Throw in carried interest and total compensation packages rose by 27.3% to $401,000 from $315,000. All these lovely greenbacks add up to an even faster rate of growth than seen at the time of the last survey.
Buyout professionals posted compensation including carry distributions of $426,500, up 32.3%, and ahead of the $408,000 pulled in by venture professionals, a 16.6% increase. It’s important to note that there are more junior professionals in the buyout sample than in the venture sample, which drags the median among buyout firms down.
For those of us who will be graduating soon only 5% of those firms responding to the survey indicated that they’d cut staff, while far more said that they would continue to hire. Hot spots for private equity hiring include those firms in mezzanine, distressed debt, energy, infrastructure and those expanding internationally. Administrative positions such as investor relations professionals are very much in need as firms look to cope with recent increases in fund size.