Base salaries and bonus payments for private equity and venture capital professionals have been rising steadily since 2014, averaging 6-8% increase for each consecutive year. With some of the major forecasts already released for 2018, GoBuyside, a leading executive search firm specializing in the recruitment of investment professionals, discusses the major factors influencing compensation growth in the private equity industry.
Published on December 19, 2017, the 2018 Private Equity and Venture Capital Compensation Report, a globally acknowledged, comprehensive private equity and venture capital compensation benchmark providing independent and unbiased data on salary, bonus, carried interest and other compensation-related information sourced directly from professionals working within the industry, revealed that 65% of surveyed respondents reported an increase in earnings, most of which were awarded in the form of bonus payments. The average cash compensation has reached $315,000 and it’s worth noting that private and venture capital professionals working for larger firms continuously out-earn their peers in smaller firms. The major factor influencing the fourth successive year of compensation increase is the growing demand for fresh investment talent. With dry powder levels – a private equity firm’s resources set aside for investing purposes – reaching hundreds of billions of dollars in North America alone, the industry is looking to employ an additional, estimated 200,000 both junior and senior level employees across 7,500 firms worldwide. “We predicted this trend several years ago based on private equity investment professionals reporting increases in both base and bonus, despite their funds not producing outstanding returns,” said David Kochanek, the publisher of the report.
Interestingly enough, the correlation between bonus payments and firm performance isn’t corresponding to the increase in compensation, notes GoBuyside. The report’s respondents employed in firms whose performance was down by 1-9% compared to the previous year, forecasted an average bonus of $161,000 for 2018, up from $149,000 in 2017. The reason is that while bonuses are most commonly calculated based on the combination of three factors – firm performance, individual performance and fund performance – the larger private equity firms, with a fund size of over $1 billion assets under management, highly favor the fund performance metric over all other methods of bonus calculation. Nevertheless, the satisfaction levels remain relatively low. Although the actual compensation has increased, over half of the respondents, including both high and low ranking professionals, described their compensation as unsatisfactory. This tendency is also dictated by the high demand for investment talent and is a major reason why industry professionals are constantly looking to join the largest private equity companies. “Firms need to tune into their team’s thoughts on compensation levels right now. Otherwise, the first indication of a problem may be when a star employee turns in his or her two-week notice to join another firm,” observed Kochanek.
GoBuyside is a leading, global executive search firm that specializes in recruiting investment talent for private equity firms, hedge funds, other investment managers, advisory platforms and Fortune 500 companies across a broad spectrum of geographies and mandates. In addition to leveraging breakthrough technology and a diligent approach, the company operates a highly competitive platform for both sourcing and screening top-tier candidates through their access to a top-tier talent network that expands to over 10,000 firms and over 500 cities worldwide.