2011 Private Equity Compensation Report Summary

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The full report answers these questions:
- Compensation average and ranges?
- Base vs. bonus payouts?
- Which titles earn the most and how?
- Who shares in carried interest and at what level?
- How does fund size and performance affect pay?
- Impact of hours worked on compensation?
- Vacation earned vs. taken?
- And much more…

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  • Welcome to Job Search Digest’s Annual PEVC Compensation Report. I am David Kochanek, Publisher, JobSearchDigest.com. I am joined by some of the job search digest staff and we want to thank you for tuning in to hear the results of the survey. In addition to this broadcast, this and more detailed information is available to our Premium members and survey participants on our website. We will try to save some time at the end of the call for questions and comments. Use the Q&A feature found in the web control panel. The Survey was designed to capture important compensation information directly from those involved in the hedge fund industry.
  • 2010 Again this year, respondents strongly represent the mid-career stage. On average, respondents are close to evenly split above and below the 10 year mark in terms of work experience. When it comes to private equity and venture capital experience, that split is closer to 5 years. 2009 A similar profile to last year. Our respondents are close to evenly split above & below the 10 year mark in Work Experience. The corresponding number, for Industry Experience, is below 5 years. Respondents strongly represent the mid-career stage, and the Associate/Sr Assoc/Principal/ VP level (2-5 years) in the PE industry ============= 2008 Our respondents are close to evenly split above & below the 10 year mark in Work Experience. The corresponding number, for Industry Experience, is just below 5 years. Respondents strongly represent the mid-career stage, and the Associate / VP level (2-5 years) in the PE industry All of those with over 20 industry years are in senior roles, of course. But interestingly about 10% with <2 Industry years, and even a few with that little Work Experience, are also in senior roles, showing that there does exist an Industry fast track
  • 2009 More VC firm representation this year (29% vs 19%). Impact is overall lower averages, as VC firms tend to payout less cash compensation. ============== 2008 There seem to less defining lines between venture capital and private equity. When asked to identify their primary investment strategy, nearly a quarter of this year’s respondents classified themselves as both VC and private equity.
  • 2009 A good representation of different size funds, including some very small ones less than $10 mill. Clarify: question asked was: what was the size of the most recently raised fund? Choose the closest answer Possible choices were $100m, $500m, >$500m, and several choices less than $100m which we've grouped together here The "don't know" option was offered as an easy way to preserve confidentiality should the respondent wish. * Many who chose "don't know" were mid-level, or senior --- who likely did in fact know. ==================== 2008 A good representation of different size funds, including some very small ones less than $1m. Clarify: question asked was: what was the size of the most recently raised fund? Choose the closest answer Possible choices were $100m, $500m, >$500m, and several choices less than $100m which we've grouped together here The "don't know" option was offered as an easy way to preserve confidentiality should the respondent wish. (Most who chose "don't know" were mid-level, or senior --- who likely did in fact know.) Still only half as many chose this option as in the HF survey ---> confidentiality less essential to this industry
  • 2009 “ 70 percent of respondents are in groups with less than 10 team members and 93 percent have less than 25. When looking at the firm size, 46 percent reported being part of a firm with less than 10 team members and 71 percent with less than 25.” 70% are in groups with less than 10 team members. 93% less than 25. 46% firms less than 10 team members. 71% with less than 25. ============== 2008 A good distribution representing firms of many sizes 90% of respondents work in teams of about 10 or less. 60% of respondents work in firms of 10 or less Average comp by Firm Size shows a steady drop-off after 25 people, until the 1000 people mark (not shown in the graph) when it surges to its maximum Interestingly, that trends holds neither for base nor for bonus independently --- although the highest average bonus does go to the largest firms. If Group Size is considered, there is an even sharper decline in Average Comp in groups larger than 10 --- until again, the maximum occurs in groups of 1000 or more This trend holds for base independently, but not bonus. A career plan & evaluation of comp must take into account the size of firm & group in considering salary & bonus potential firm size average comp Up to 5 222285 5 267622 10 245912 25 269311 50 260511 100 232624 500 202843 1000 326369
  • 2011 Report Last year we reported that 1 in 3 saw no change in compensation over the previous year. This year, that ratio is much higher, in fact, almost 1 in 2 reported no change in their compensation. It turns out this is actually a good thing, as that shift came from the number of people who felt their compensation would actually decrease. In a year where buyout deals heated up and the big players are complaining of being priced out of the market for some deals, private equity professionals reported a solid increase in total earnings over the previous year, with the average cash earnings coming in at $230,000 USD.   As 2010 wraps up, 45 percent expected double-digit increases over last year. The average expected increase was 13 percent. 2009 last year, 1 in 4 expected no change in comp --- this year, it's 1 in 3. And the percentage expecting a decrease in comp decreased from 19% last year to 16% this year. On average when we surveyed PE professionals in 2008, average expected total comp for was $263,000. 2009 expected comp came in significantly less at $208,000 USD. Compared to the HF industry Change expectations are in line with the HF industry. There, 35% expected 2009 compensation to stay the same as 2008. Keep in mind, the overall average in the HF industry came in over $300k USD per year. =============== 2008 All the quote boxes in this presentation are individual answers to the question, “Are you happy with your overall compensation? Why?” last year, 1 in 5 expected no change in comp --- this year, it's more than 1 in 4. and the percentage expecting a decrease in comp has multiplied by a factor of six --- 19% compared to last year's 3% still, for 2008, the industry expects an average salary increase, though modest compared to 2007's increase. average expected total comp for 2008 is $263,000 --- up 3% from 2007. Expectations are also modest relative to the HF industry. There, nearly half expected an increase of 15% or more, and more than 1 in 10 expected an increase of over 70%! (in PE, the ">70%" figure is 1.6% of respondents, or 1 in 60) that was as of last summer, and those HF expectation have surely been subdued since then. PE / VC industry has never claimed to thrive in bear markets, as the HF industry does.
  • 2009 Things were looking up at the end of 2009 – just barely – with a 2.5% increase over 2008. Projected cash comp for 2009 ave $144 base + $65 bonus = $208 total
  • 2009 2009 expectations: as always bonus tends to be a substantial component of total comp, and it counts for more, the more an individual makes overall. On average, bonus is expected to make up 31% of total compensation.
  • 2009 “ When it came to fund performance, about 40 percent stated their fund's performance was positive, 16 percent said it was even and 21 percent reported negative returns.” About 40% stated performance was positive. 16% even 21% down ============ 2008 Not as simple as highest performance equals highest pay, but the numbers imply something like that The worst pay did indeed go to the worst performers. And, 2nd worst went to "don't know" which may be used as an alternate answer for poor performers. The "Down 10-25%" category is only composed of two data points --- including an MD who took home a large bonus even in an off year, bringing the average comp way up. Average comp (sorted increasing) by fund performance: Up 25%+ 273214 Up 10%-25% 250740 Up 1%-10% 280206 Even 254993 Down 1%-10% 245904 Down 10%-25% 589968* Down 25%+ 200000 I do not know 211818
  • 2011 Report Private equity investors will be pleased to know that bonus practices are aligned with fund performance for 2010. Last year about half of the firms reported positive fund performance. That number this year is an impressive 85 percent.   "Last year, there was plenty of discussion around the bank bailouts and public scrutiny of financial pay programs, especially bonus payouts," says David Kochanek, publisher of PrivateEquityCompensation.com. "This year funds performed well and the average expected bonus increase is over 20 percent."   28 percent of contributors reported having some level of bonus guarantees, although the level of guarantee was all across the board, from 5 percent up to 100 percent. Of those receiving bonuses, only 12 percent were required to invest some amount of their bonus back into the fund.
  • 2010 Employees representing firms with funds larger than $500 million earned 44 percent more on average than smaller firms.   Across the board, the average expected bonus increase for 2010 is 21 percent. The largest increase, again, came from firms with funds over $500 million.
  • 2010 Common titles such as Associate, Director, Managing Director and Principal show different levels of compensation based on the type of firm. There are significant differences in total compensation across firm types, especially at the higher levels. Continuing the trend, for most positions, the VC firms don't keep up with pure play private equity funds when it comes to compensation. One break out area for 2010 is the expected level of bonuses at the VC firms. 2009 “ Common titles such as Associate, Director, Managing Director and Principal show different levels of compensation based on the type of firm. There are significant differences in total compensation, especially at the higher levels. Why? As we’ve reported in previous years, responsibilities and compensation vary significantly depending on the size and type of firm.” Common titles such as Associate, Director, Mg Dir and Principal show different levels of compensation. Here you see significant differences in total compensation, especially at the higher levels. Why? As we’ve reported in previous years, responsibilities and compensation vary significantly depending on the size and type of firm (PE, VC, both).
  • 2010 What does the typical private equity work week look like? 70 percent reported working between 50-70 hours per week, 20 percent work more than 70 hours per week and 8 percent work between 40 and 50 hours per week. 2009 77% reported working between 50-70 hours per week on average. 10% work 40-50 hours per week. ============= 2008 the industry mean is 58, and the mode is 60. numbers here are similar to the HF industry, but higher on the higher end. For example, in the HF industry less than 10% work over 70 hours. people working under 40 hours tend to be senior or junior, not mid-level. on the other hand, people working over 40 hours tend to be mid-level (VP, principal) those hours pay off: Among respondents working 70+ hours per week, a full third reported their fund was up 25% or more, whereas for those working less than 70 hours, only 13% reported such performance.
  • 2010 Hard work is en vogue again and it shows in the pay levels. The number of hours worked directly correlated to overall compensation levels (with the exception of a small number of people who worked more than 90 hours per week). 2009 It seems, this year, the number of hours worked didn’t necessarily correlate to overall compensation levels (with the exception of a small number of people who worked more than 90 hours per week). As a point of interest, VC repondents reported working 55 hours per week and PE or PE/VC respondents reported working 58 hours per week on ave. ==================== 2008 there are some in the industry making good money on a very small number of hours; the only common theme among them is that they work at large funds. also, more time in the office really does pay off, up to 90 hours. the precipitous drop-off in hourly rate at that point means some people are being truly overworked and underpaid. people working this many hours tend to be in VC (as opposed to PE) --- a faster-paced industry NOT USED the see-saw trend of the earlier version of this graph (with more ranges on the y-axis) is worth pondering. Our survey allowed a free-response for hours per week, meaning we received responses that varied in specificity. it seems to suggest that an extra five hours doesn't make that much difference, but an extra 10 does.
  • 2010 Those concerned about job security primarily commented on fund raising ability and market conditions. Interestingly, market conditions played a big part in why many are not concerned about job security as well.   This year we saw an increase in concern about how a firm is structured, that is either the type of firm, financial stability or how the investment team is structured. 2009 “ Those without concern said their firm recently secured the next round of funding, they were in the right market (often reported as Asia), they could easily find a new job if necessary, or they are key to running the fund. Managing Partners should take note that, in good markets and bad, top talent is aware that they can make a move at anytime. Those somewhat concerned primarily focused on fund raising concerns, their risk of being downsized, and the future of the VC industry. Those very concerned said they worry about the firm’s ability to raise the next fund and the lack of deal flow. Both investor relations and business development become more important in tough markets. If there are not many good deals to be done, few roles become more important than business development.” Those without concern said their firm recently secured the next round of funding, they were in the right market (Asia anyone?), they could easily find a new job if necessary (are you listening Managing Partners?), or they are key to running the fund. Fund Raising Just moved to a firm that recently raised a new fund. I was certainly concerned before that. Fund Raising We just raised a fund Fund Raising We invested 75% of our first fund in less than 1 1/2 year; we have a very well balanced portfolio, and a good expectation on return to our investors. We're already raising the second fund. Fund Raising Most recent fund is performing well; New fund to be raised shortly Fund Raising Funding seems secure for this cycle Fund Raising Just closed $1.3B fund last Oct, completed first close at $150mm on a $400mm (target) growth fund last month - firm is doing well, I am a top ranked analyst Market The firm is focused on expanding in Asia. Market China has too many deals Market i saw where the market was going so i moved and sacrificed salary for security Market Still good environment in China Market We still have half our fund to invest, have done quite well, and are very well positioned in China. Market VC & PE market becomes more and more robust in the foreseeable future Market secondary direct investing has a countercyclical element to it. Market business growing helped by the crisis Market special situation fund Market secondaries is growing New Job I can find another job based on my good deal experience in China New Job capable to start off on my own New Job There is a world of opportunities available, and I can take advantage of them. New Job Given my competency, academi back ground and extremely low level of salary as compared to market benchmark, i think it would not be very difficult for me to get a job which pays at least as much as I am getting uin my current job New Job I was just hired New Job Not paid enough to be at risk, could easily replace the income if job lost. Performance I am doing my job properly Performance doing well, conducting many projects Performance i have been asked to stay longer Performance Stable revenues, important function in team Performance Financially stable company; single-person 'group'. Performance Not depending much on markets Performance I am good Performance As I am confident about my work Relationships Good relation with seniors in the firm Relationships Small, relational firm. Structure Plenty of dry powder, GP fee stream relatively stable to cover overhead. Structure The overall firm has added assets and people over the last year. Structure The company size is small and I head the investment function Structure The firms's accounting function is currently only myself (controller) and a CFO. Structure small firm I handle too much work Structure I have key strengths that others don't have in the fund Structure I work for a stable family office with diverse interests Those somewhat concerned primarily focused on fund raising concerns, their risk of being downsized, and the future of the VC industry. Closing Fund Fund winding down Closing Fund Firm going through transition Deal Flow If we do not complete deals, we do not continue to exist. Deal Flow Slowed investment pace yields less need for large teams Fund Raising long term employment dependent upon raising additional funds Fund Raising Firm raised new fund but below target. Fund Raising Fund raising is difficult right now. Fund Raising raising VC appears to be very difficult, a situation which looks to continue for 2-3 yrs Fund Raising Difficult for all VC firms to raise a next/larger fund Fund Raising Ability to raise a new fund/ continuity of the firm Fund Raising Continuity is tied to fund raising success Fund Raising Ability to raise funds is always a concern Fund Raising In fundraising mode. Industry Due to market conditions / competition etc.. Industry I expect that the number of private equity firms may contract in coming years. Industry VC is going through a secular decrease in overall activity. Anyone not at least somewhat worried is foolish. Industry industry is contracting. small group of people Industry LP's concern about venture as an asset class Industry Industry is consolidating dramatically Industry Too many VC Funds and too many VCs in the industry Industry general industry turmoil Market Indian market is relatively insulated but not immune to global market meltdown where capital raising is difficult Market continued volatitlity in syndicated debt markets make proj fin difficult Market Because of the current state of the financial markets New Job Concerned that I may lose my job but I'm not worried about finding another job. New Job For personal growth and career trajectory reasons, I am currently in search of other employment. Performance Portfolio companies not doing as well as intended Performance Firm is stable, but fund performance is not very encouraging Structure Promotions have been frozen, so career growth is affected Structure Possible merger with another firm Structure Company has downsized to minimum. If company survives, my position will as well. Structure non partner staff are more at risk Those very concerned said they worry about the firm’s ability to raise the next fund and the lack of deal flow. Culture Up or out, they like to hire associates and see who makes it Deal Flow the partners are aging an not able to find as many new deals as their contacts leave the industry. They refuse/cannot support new hires for deal sourcing.. Deal Flow limited number of deals means limited need for deal team Deal Flow Economic downturn impacting deals Fund Raising Raising a new fund in 2010 will be a challenge Fund Raising Cannot raise new fund Fund Raising Fundraising is challenging Fund Raising Firm has been unsuccessful in raising a next fund and has been rocked with scandel. Fund Raising Bad environment to raise a new fund, and current fund is aging. Fund Raising Fund raising has become problematic, which limits the future growth in the firm. Fund Raising Fundraising has been difficult. Fund Raising Ability to attract capital. Fund Raising Fundraising market Fund Raising Capital Markets have been extremely volatile Market There have not been a hike in the current year and less chances of hike next year Market Economy and fund issues New Job Not partner track - likely to leave firm in less than a year New Job Laid off 10 months ago and still not able to find a job in the industry New Job Tough job market Structure firm not stable Structure Company cutbacks Structure Company is cutting costs and employees are the big ones Structure Poor strategy in the past has led to 3 rounds of layoffs already. Structure Parent financial institution having layoffs ============== 2008 Those without concern said: Cash is King. Cliché, maybe, but never more true than today. Being part of a group with large steady cash flows provides immunity to current crisis We just raised a new fund, so we have a lot of capital to invest. Because the markets are driving angel investors to our group. We are rapidly growing and this financial turmoil is creating more opportunities for us than problems, since we do not highly leverage our companies anyway (usually about 20-30% leveraged) We focus on distressed investing, it is a good time for us Its who you know (and where you stand): Again, I work for myself and don't target the big deals I am initiating right-sizing of organization One of the firms most productive professional. The accounting function is not slowing down Those somewhat concerned primarily pointed to the ability to raise the next fund: Hey, it's all about being able to raise the next fund ... If a new fund is not raised, we will have less dealmaking activity. Need to raise a new fund and that will be more difficult than it should be Never certain whether subsequent funds will be raised. Raise next fund? Trying to raise a new fund This economic meltdown goes beyond the financial markets. This could make the 2001 bubble look like a hiccup. tough times ahead for portfolio companies Those VERY concerned primarily pointed to the ability to raise the next fund: Ability to raise a new fund As a recent hire, I would likely be exposed should we reach the end our investment period without being able to raise another fund. Financial close of fund Fundraising environment New Fund's Raising Next fund may not get raised Poor returns, inability to raise additional capital problems with raising new funds status of fund raising
  • 2010 When it comes to the balance between work and personal life, 40 percent report striking an above average balance. 2009 48% report above average balance Be sure to talk to people in the firm about culture and vacation policies. “ When it comes to the balance between work and personal life, 48% report striking an above average balance. From the firm's perspective, in the hiring process, highlighting the firm's culture, benefits and vacation policies can give a leg up in the talent acquisition process.” ================= 2008 A very similar distribution to the HF industry. the numbers here are a little shifted toward the lower numbers, but aside from that not much changed from last year. Those reporting good work-life balance consistently leave less vacation untaken than those reporting poor balance. Take your vacation!
  • 2009 Money isn't the only form of compensation. Vacation in the industry is generous, with over 79% earning three weeks or more.
  • 2010 Given that profits are required in order to realize upside, levels of carry payout have not returned to 2007 levels. The good news for the industry is the Senate was unable to pass a spending bill that would have taxed much of the carried interest earned by private equity and VC professionals as ordinary income, as opposed to capital gains as it is now.   For those with carry, they report having a holding period of just shy of 3.3 years to be fully vested in their carried interest. 2009 Perhaps the greatest indicator of whether one receives carry is their length of work experience. Of course, work experience usually translates into higher level positions as well. Most people with 10 yrs work experience have some level of carry as part of their compensation package. ========================= 2008 this chart shows that profit-sharing is a relatively reliable prospect in this industry. in comparison to the HF industry, more PE professionals receive a stake, faster. in the 2-5, 6-9, and 10-15 year categories, TWICE the proportion in PE industry, as in HF. even after 20 years of Work Experience in HFs, only 55% of professionals hold equity. Here, above 75%. the <2 category is an interesting discrepancy in this trend. There, more hold equity in HF industry than PE. higher mobility and the existence of "prodigies" in the HF world probably contribute: Equity used as a hiring enticement for stars
  • 2010 Given that profits are required in order to realize upside, levels of carry payout have not returned to 2007 levels. The good news for the industry is the Senate was unable to pass a spending bill that would have taxed much of the carried interest earned by private equity and VC professionals as ordinary income, as opposed to capital gains as it is now.   For those with carry, they report having a holding period of just shy of 3.3 years to be fully vested in their carried interest. 2009 48% reported no carry. 41% reported 5% or less carry. Average vesting period for carry is just shy of 4 years. *** COMPARE TO HF 2009 *** AGAIN THIS YEAR, 70% stated they receive no equity. 11% said they get less than 2%. ========== 2008 Overall, more generously distributed than the HF industry , where 70% say they receive no carry. (Here the figure is 46%. That is a slight drop from last year's 50%; in other words, Carry was shared more widely this year.) also, a high level of carry is more rare in this industry, compared to the HF industry where nearly 1 in 10 respondents had an equity share of 15% or more not surprisingly, most people at the 21%+ level are Partners or MDs. VESTING * 8/10 with carry reporting having a vesting period. * The majority vested between 3 and 6 years.
  • 2010 This year 36 percent reported being happy with their compensation. Last year that number was 40 percent. This is two years in a row that compensation satisfaction has decreased; a sure sign that the private equity job market is heating up again. 2009 Comments “ As we've seen in past years, satisfaction with compensation is inversely related to market conditions. When the market improves, the desire for higher earnings trumps job security. This year 40 percent reported being happy with their compensation. Last year that number was 47 percent. We see this decrease as an indicator that private equity and VC professionals see the market starting to take a positive direction. Now, compare the last two years to 2007, when only 26 percent stated they were happy with their compensation. The industry was realizing big profits and professionals were hearing "whisper numbers" from their industry contacts of greener pastures. Happiness is a relative state and a down-turned market can produce contentment via dampened expectations - as we see in recent years.” 40% Happy. No surprise at all to us. We see that pay satisfaction is inversely related to market conditions. When the market improves, the desire for more comp trumps job security. ============= 2008 Comments 47% Yes, happy. 53% Not happy. One year ago (2007), only 26% answered yes. Happiness is relative and a down-turned market is doing its part to produce contentment via dampened expectations. The hedge fund industry showed a very similar change in replies to this question from last year to this.
  • 2011 Private Equity Compensation Report Summary

    1. 1. 2011 Private Equity Compensation Report Summary from PrivateEquityCompensation.com © Copyrighted Material – All Rights Reserved
    2. 2. Questions Answered <ul><li>The Full Report Answers these Questions: </li></ul><ul><ul><li>Compensation average and ranges? </li></ul></ul><ul><ul><li>Base vs. bonus payouts? </li></ul></ul><ul><ul><li>Which titles earn the most and how? </li></ul></ul><ul><ul><li>Who shares in carried interest and at what level? </li></ul></ul><ul><ul><li>How does fund size and performance affect pay? </li></ul></ul><ul><ul><li>Impact of hours worked on compensation? </li></ul></ul><ul><ul><li>Vacation earned vs. taken? </li></ul></ul><ul><ul><li>And much more… </li></ul></ul>© Copyrighted Material – All Rights Reserved
    3. 3. Experience © Copyrighted Material – All Rights Reserved
    4. 4. Fund Profile © Copyrighted Material – All Rights Reserved
    5. 5. Fund Profile © Copyrighted Material – All Rights Reserved
    6. 6. Size Matters © Copyrighted Material – All Rights Reserved
    7. 7. Compensation © Copyrighted Material – All Rights Reserved
    8. 8. Compensation © Copyrighted Material – All Rights Reserved
    9. 9. Compensation © Copyrighted Material – All Rights Reserved
    10. 10. Fund Performance © Copyrighted Material – All Rights Reserved
    11. 11. Bonus © Copyrighted Material – All Rights Reserved
    12. 12. Bonus © Copyrighted Material – All Rights Reserved
    13. 13. Compensation © Copyrighted Material – All Rights Reserved
    14. 14. Compensation © Copyrighted Material – All Rights Reserved
    15. 15. Work Environment © Copyrighted Material – All Rights Reserved
    16. 16. Work Environment © Copyrighted Material – All Rights Reserved
    17. 17. Work Environment © Copyrighted Material – All Rights Reserved
    18. 18. Work Environment © Copyrighted Material – All Rights Reserved
    19. 19. Work Environment © Copyrighted Material – All Rights Reserved
    20. 20. Carried Interest © Copyrighted Material – All Rights Reserved
    21. 21. Carried Interest © Copyrighted Material – All Rights Reserved
    22. 22. Satisfaction © Copyrighted Material – All Rights Reserved
    23. 23. What is in the Full Report? © Copyrighted Material – All Rights Reserved
    24. 24. Buy the Full Report at www.PrivateEquityCompensation.com

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