Private Equity raises pay to lure juniors in hiring spree
Posted by Kea ConsultantsDecember 8, 2014
Article in efinancialnews.com by Becky Pritchard 08/12/2014
Buyout firms are hiring more junior investment executives and raising their pay as a finale to the strongest year for European fundraising since the financial crisis.
Private equity firms recruited 40% more juniors from investment banks and consultancies than they did two years ago, according to headhunters Kea Consultants. In the 12 months to September this year, 139 juniors moved from those sectors to European private equity, up from 135 in the previous 12 months and from 99 two years ago, research by Kea found.
Headhunters attribute the increase to a buoyant fundraising market and improving economy, with firms hiring more juniors to help them spend their freshly raised funds. According to data provider Preqin, more than €85 billion has been raised for 198 Europe-focused private equity funds so far this year for deals – the highest amount raised since 2008.
Charlie Hunt, principal consultant at Private Equity Recruitment, said: “We’ve definitely seen a lot of demand for junior level. The reason there has been more recruiting in the past 12 months is that more funds have been raised and existing funds are being successful. It means they are not trimming staff and are promoting people, which leaves a gap at the bottom.”
Some junior executives may have been enticed by rising pay packages in the industry. More than 80% of European private equity firms increased their base salaries for investment professionals below managing director level in the 12 months to July 2014, according to the European Private Equity Compensation Report by MM&K, Holt and Thomson Reuters.
Some 54% of the firms surveyed increased their bonuses for those roles in the same period. The compensation report found that the median base salaries and bonuses of entry-level analysts at venture capital firms, credit fund managers, mid-market and large-cap buyout funds were 23.5% higher this year than last year. Senior associate salaries and bonuses rose by 20% in the same period.
There has been a “steady increase” in hiring at junior level, said Hephzi Nicol, co-founder of Kea Consultants.
She added: “We did expect to see an increase in junior hiring because they are the most affordable and manageable.”
Nicol said that there had been pay rises this year: “More than we’ve seen in the past five years – not huge but definitely some funds reviewing their base salaries. It’s a hangover from the crisis – now we are recovering, they are saying: ‘Oh right, we haven’t actually raised our salaries for eight years’.”
Nigel Mills, a director at pay consultants MM&K, said junior private equity executives were being compensated more generously because senior colleagues were starting to get a slice of the firm’s annual profits – carried interest, or carry. He said: “If you go back a long way, junior guys would have got more carry than they would have done today. The partners are recognising that while they might be starting to get carry payouts, these guys aren’t.”
Bonuses at associate level in private equity have recently risen twice as fast as in other sectors, according to Emolument.com.
The median bonus in private equity was 13% higher this year than last, rising to £52,000. The median bonus in European investment banking and in asset management rose, respectively, by 6% to £34,000 and by 5% to £22,000.
The outlook in investment banking was “more cautious” than in private equity, according to Adam Jackson, a director at recruitment firm Astbury Marsden.
He said: “Scrutiny on investment banking has been massive from a regulatory perspective but also from internal stakeholders.”