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Private equity compensation retreats in 2009/10

Following several consecutive years in which private equity compensation had been on an upward trajectory, growth across all segments of the market has come to a halt with total compensation now trending down, according to a report by Glocap Search and Thomson Reuters.

The 2010 Private Equity Compensation Report, an in-depth analysis of 2009/10 compensation at US-based private equity funds, says much of the pullback in compensation can be attributed to a drop-off in fee income from slower deal activity and dramatically reduced fundraising.

This is an about-face from the past few years when record-setting fundraising and a steady flow of larger deals drove compensation to new heights.

The report, which covers later-stage buyout/growth equity, early-stage venture capital and private equity fund of funds, includes compensation data for analysts, associates, senior associates, vice presidents, principals, partners, chief financial officers, controllers, fund accountants, fund marketers, investor relations professionals and administrative/executive assistants. There were no major categories in which compensation increased.

Brian Korb, senior partner at Glocap and head of its private equity practice, says that in addition to the reduced fee income, investment professionals’ own expectations for compensation have been tempered due to the layoffs that shook Wall Street.

He says pressure to raise compensation was reduced further by the diminished threats from hedge funds and competing private equity funds, which in previous years had lured away top talent with lucrative offers.

“This is the first time compensation has fallen across the board in the more than ten years that we have been tracking it. Nevertheless, this environment provides a healthy wake-up call that private equity is not an easy money business,” Korb says.
The report shows that compensation increases significantly as the amount of capital under management rises. Traditional later-stage private equity/buyout funds still pay the highest compensation levels followed by venture capital firms which, in most cases, pay more than fund of funds.

The study also found that base salaries across most categories were relatively unchanged from last year’s levels, with most of the declines in total compensation reflected in reduced bonuses.

Total average compensation for senior associates at buyout/growth equity funds held relatively steady with only three per cent decreases.

Total average compensation for vice presidents at buyout/growth equity funds was down five per cent to USD424,000, with bonuses down as much as ten per cent in some categories. 

Fund of fund compensation across all levels was down one to three per cent, the lowest decrease among the three asset classes.

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