Compensation at U.S.-based private equity funds is declining broadly for the first time in more than a decade, a new report shows.
The 2010 Private Equity Compensation Report by Glocap Search and Thomson Reuters finds pay growth "has come to a halt with total compensation now trending down" across all segments of the market - including buyout/growth equity, venture capital and private equity fund of funds.
Among specific findings:
- Established PE/buyout funds still pay the highest compensation within the overall PE space. Venture capital firms are next, while fund of funds generally pay the least. Within each category, compensation is strongly related to the amount of capital a firm manages.
- This year, senior associates at buyout/growth equity funds had total compensation decline 3 percent on average.
- Compensation for vice presidents at buyout/growth equity funds dropped 5 on average, to $424,000. Bonuses dropped as much as 10 percent in some categories.
- Within funds of funds, compensation dipped 1 to 3 percent across all levels.
- Bonuses accounted for most of the decline. Base salaries across most categories were relatively unchanged from last year.
'Not an Easy Money Business'
Reasons for the drop are familiar, led by shrinking fee income from slower deal activity and dramatically reduced fundraising. Brian Korb, who heads Glocap's private equity practice, also cites two cross-market influences: layoffs on Wall Street, and diminished competition for talent from hedge funds and other PE funds.
"This environment provides a healthy wake-up call that private equity is not an easy money business," Korb says.
The ninth annual report analyzes base salary and bonus compensation for thousands of professionals. Data was drawn from a combination of actual placements executed by Glocap, candidate data maintained by Glocap in the course of its search business (including expected bonus information) and input from Glocap recruiters, fund professionals and human resources personnel.