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I am referring here to the private equity industry, which "was able to withstand the economic turbulence that negatively affected many other financial services sectors," according to the 2009 Private Equity Compensation Report by Glocap Search LLC and Thomson Reuters. Indeed "not only were there no major categories in which compensation declined," says the report, but "compensation for nearly all titles covered by the report showed some increases." Got your attention yet? Good. The total cash compensation (base salary and cash bonus) for senior associates at the largest buyout funds (those with $5 billion or more in assets) is now $435,000, a 4% increase over their 2007 levels. (Don't be misled by the "senior" in senior associate; these are first year M.B.A.s, says the report.) At the principal level, large buyout funds pay an average total cash compensation of $885,000, also a 4% increase from last year. Bonuses for principals at these funds rose 6% to an average of $607,000, which is included in the $885,000. All of which begs the question: Just where are PE firms getting all this money? The Glocap/Thomson report seems to fly in the face of nearly everything that has been reported about PE in general and their compensation/retention trends in particular. Just last month Terra Firma chieftain Guy Hands predicted a drop-off as high as 75% for PE dealmakers. Hands said his prediction was due to buyout shops taking longer to deploy capital and waiting longer for exits as tight credit markets continued to constrict leveraged buyouts. But here they are, reporting increases of 6% to the average bonus? Hands was not pulling his figures out of thin air. According to his new service's data, private equity dealflow fell roughly 75% to $143 billion in the first half of 2008. Among megabuyouts, Kohlberg Kravis Roberts & Co. posted a loss of $1.1 billion for the first half as difficult credit markets took their their toll on the values of the firm's holdings. Blackstone Group LP posted a net loss of $156.5 million for the second quarter, compared with net income of $774.4 million a year earlier. Blackstone also had negative $198.6 million in performance fees for the first six months of 2008 (meaning it reversed previously recognized performance fees), compared to about $1.1 billion in performance fees it earned for the first six months of 2007. I'm not even going to bring up the price of Blackstone's stock. What can explain the apparent discrepancy between these figures and
the numbers cited by Glocap/Thomson? Could the compensation figures be
inaccurate? Assuming Glocap/Thomson got them via survey, it would not
be surprising. After all, everybody wants to report they are earning
(and paying) higher salaries if only to make themselves and their
employers look good. It's human nature. Instead, the driving force behind the increases in compensation is PE's growing asset base. Yes, deal volume has slowed considerably, but 2008 has been a relatively strong year for fundraising. When combined with 2007, which set a record for capital inflows, private equity funds continued to have the resources to maintain compensation levels and in many cases increase them, according to Glocap. This jibes with what Blackstone reported in their last quarterly: AuM of $119.4 billion, up 30% from a year ago. Nevertheless, after multiple years of accelerated growth in
compensation "it feels like the industry has taken its foot off the
gas," says Brian Korb, senior partner at Glocap and head of its private
equity practice. "Compensation is up, but funds are taking a more
conservative approach as they structure packages and consider
promotions going forward." - Nathaniel E. Baker See Glocap's 2009 Private Equity Compensation Report Nathaniel E. Baker is The Deal's middle market editor. CategoriesComments
From: Nathaniel E. Baker,
that was actually a misprint. $435K is the total cash compensation. Article should now reflect that.
Posted on:
October 31, 2008 4:07 PM
From: mike jones,
whats the total compesation for an associate with 2 years of post mba private equity experience at a lower middle maket firm
Posted on:
April 2, 2009 11:56 AM
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Layoffs have begun to hit both Wall Street and Main Street, while the bonus pool is greatly diminished for those who do still have jobs. It's ugly out there and only going to get worse. Yet the employment and compensation picture is not all doom and gloom. Or at least not for everybody. A corner of the financial industry has apparently been completely unscathed and -- get this -- is reporting increases in compensation across the board and for nearly every job function.
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$435K WITHOUT bonus for a 1st yr. MBA. Very hard to believe. So what's the all-in?