Salary survey: Private equity base pay tops bankers'

Private equity specialists are paid higher basic salaries than other financiers as well as receiving additional payments from shares of their funds' profits, according to a compensation study.

The lowest level of partner at the average US buy-out firm receives a basic salary of $200,000 (€176,000) this year, while average salaries for senior partners are more than $450,000, according to a report by research firms Private Equity Analyst and Holt.

The most senior partners award themselves basic pay of almost $600,000. US venture capitalists receive almost identical amounts and the picture is much the same in Europe, say institutional investors.

The study shows the average level of basic salary has risen by 14% for top buy-out partners and between 3% and 7% for other buy-out partners since last year. Junior partners at venture capital firms have seen basic pay go up by 10%.

According to one headhunter, a senior fund manager could expect a basic salary of around $175,000, while a chief investment officer might hope for $300,000. Another said a managing director at a bulge-bracket investment bank could earn base pay of $200,000 to $250,000.

Fund managers and bankers expect bonuses but these are unlikely to be as high as the share of profits, or 'carry', that can go to partners of private equity firms. Carry is usually 20% of any capital gains made by the funds that private equity firms manage, once they have achieved a hurdle rate of return for their investors.

A few private equity firms, including venture capitalists Sequoia, Benchmark, Redpoint and Charles River and buy-out firm Bain Capital, take 30% of any capital gains, according to investors.

Private equity firms can afford to pay their staff basic salaries because they have increased fund sizes without making comparable reductions to their annual management fees. These were originally set at 2%, to cover day-to-day running costs.

Apart from a handful of exceptions, including US venture capitalist New Enterprise Associates and UK buy-out firm Alchemy Partners, the management fee rate has not fallen below 1.5%. Investors say Charterhouse Development Capital, the UK buy-out firm, is charging 1.5% on the €2.7bn fund it raised two months ago.

The firm has 19 investment staff, which works out at fees of €2.1m each a year on this fund alone. Cinven, Candover, BC Partners and Doughty Hanson receive similar amounts, while Permira, CVC and Industri Kapital, with larger staff, are receiving around half as much.