Private equity offers pay hikes in battle for top talent

Competition for private equity investing talent rose to a new high after the buyout industry set records for deals and exits last year, according to a report by recruitment firm Heidrick & Struggles.

While buyout firms are now experiencing a slowdown in closing deals and raising funds, pay in the industry has remained high. Of the 939 private equity investment professionals who took part in the survey, 65% said their base compensation increased this year compared to last year, according to the report.

“The first six months of the year have been exceptionally active” for attracting private equity firms, said Jonathan Goldstein, regional managing partner for the firm’s private equity practice in the Americas.

However, Goldstein expects bonuses this year won’t be as robust as last year, when some candidates received double what they would receive in a typical year. The Heidrick & Struggles report showed that 78% of respondents had increased bonuses in 2021 compared to the previous year. Bonus information for 2022 is not yet available as bonuses are usually paid out in December.

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Fundraising for private equity in the first half fell 43% from the first half last year to $247 billion, according to data provider Preqin. According to Dealogic numbers, transaction volume in the U.S. fell by about 35% to $373 billion through May.

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Increasing private equity rewards is a long-term trend as the industry has grown. Over the past year, however, private equity firms, like other companies in the US, have come under pressure to raise wages to hire and retain workers. Efforts to raise more money from wealthy investors have increased competition.

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Women and minority candidates were in demand as private equity seeks to break away from its reputation as a white male-dominated industry. Various job-changing candidates see cash compensation increases of 50% to 200%, while other candidates typically see increases of up to 25%, Goldstein said.

The market has also been extremely strong for junior candidates, according to the Heidrick & Struggles report. Average cash compensation for associate-level employees, the youngest category, increased 26% from 2020 to 2022, while for managing partners, the highest level, it increased 15% in companies with $4 billion under management to 5, USD 99 billion rose, survey said.

The survey showed that wages tend to be higher in larger companies. At the smallest companies, whose final capital was less than $250 million, average past-year wages, including base and bonus, ranged from $219,000 at the lowest seniority level to about $1.1 million at the senior level highest level.

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For companies whose last equity was more than $10 billion, average compensation last year ranged from $336,000 to $2.1 million, excluding carried interest income, the survey found.

Bonuses in 2022 likely won’t be as strong as last year due to the drop in transaction activity, Goldstein said. He expects total compensation – base plus bonus – to be the same or even lower in 2022 as last year’s massive bonuses return to normal.

“The bumps we saw in compensation in 2021 were a lot of one-time additional bonuses based on outperformance,” Goldstein said.

write to Chris Cumming at [email protected]

This article was published by Dow Jones Newswires, another service of the Dow Jones Group

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