Competition for private equity investment talent rose to a new high after the buyout industry set records last year for deals and exits, a report by executive-recruiting firm Heidrick & Struggles showed.
While buyout firms are now experiencing a slowdown in deal making and raising money, industry pay has remained strong. Of the 939 private equity investment professionals who participated in the survey, 65% reported that their base pay rose this year compared with last year, according to the report.
“The first six months of the year were extraordinarily active” for private equity recruitment, said Jonathan Goldstein, regional managing partner for the firm’s Americas private equity practice.
However, Goldstein expects that bonuses this year won’t be as robust as last year, when some candidates received double what they would get in a typical year. The Heidrick & Struggles report showed 78% of respondents’ bonuses rose in 2021 from the year before. Bonus information for 2022 isn’t available yet because the awards typically are paid in December.
In the first half of the year, private equity fundraising fell 43% from last year’s first half, to $247bn, according to data provider Preqin. US deal volume dropped about 35% through May, to $373bn, according to Dealogic figures.
The increase in private equity compensation has been a long-term trend as the industry has grown. In the past year, however, private equity firms, like other businesses in the US, have been under pressure to raise wages to recruit and retain workers. Efforts to raise more money from wealthy investors have intensified the competition.
Women and minority candidates have been in demand, as private equity seeks to move away from its reputation as an industry dominated by white men. Diverse candidates changing jobs are seeing 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, the Heidrick & Struggles report said. Median base cash compensation for employees at the associate level, the most junior category, grew 26% from 2020 to 2022 while rising 15% for managing partners, the most senior level, at firms with $4bn to $5.99bn in assets under management, the survey said.
The survey showed that pay tends to be higher at larger firms. At the smallest firms, those whose most recent funds were smaller than $250m, mean pay last year, including base and bonus, ranged from $219,000 at the lowest levels of seniority to about $1.1m at the highest.
At firms whose most recent funds were greater than $10bn, mean pay last year ranged from $336,000 to $2.1m, not including carried interest income, the survey showed.
Bonuses in 2022 are unlikely to be as strong as they were last year, due to the decline in deal activity, Goldstein said. He expects total pay in 2022 — base plus bonus — to be flat or even down, as last year’s massive bonuses return to normal.
“The bumps that we saw in compensation in 2021 were a lot of one-time extra bonuses based on outperformance,” Goldstein said.
Write to Chris Cumming at [email protected]
This article was published by Dow Jones Newswires, a fellow Dow Jones Group service