Knowledge Center: Publication
2019 North American Private Equity Investment Professional Compensation Survey12/19/2019 Jonathan Goldstein and John Rubinetti
This year’s survey includes a review of 2018 and year-to-date 2019 activity in North American private equity, our thoughts on the major hiring trends for investment professionals, and an exploration of the composition of 2019 compensation packages for investment professionals, based on responses from 895 survey participants.
The following summarizes what we found.
Private equity: The big picture
- The state of the US private equity market is strong. As of November, US private equity funds had raised $246 billion in 2019, more capital than in any other year recorded by PitchBook, and up substantially from a previous high of $238 billion in 2017. With several large vehicles expected to close before New Year’s Day, the final total will likely be higher still.
- Large firms are driving the growth of private equity fundraising. Firms with at least $5 billion in assets under management (AUM) accounted for more than half of all fundraising through the third quarter of 2019, according to PitchBook. This bodes well for compensation because the higher the AUM, the higher the compensation will likely be for a firm’s investment professionals, depending on the length of their private equity experience.
- Indeed, there are many signs that both industry growth and compensation packages will continue to be robust. Stock market indices are still signaling optimism, and, in late October, the Federal Reserve made its third cut to interest rates this year.
- Investors are using fund assets to buy stakes in general partners and other asset managers rather than commit capital to the general partners’ funds.
- Finally, the secondary market for fund stakes is booming as general partners get increasingly creative in structuring their secondary transactions.
Investment professionals: Hiring trends
- While the operating partner role is the fastest-growing position within the private equity industry as of mid-2019, the actual number of investment professional assignments continues to dwarf operating partner assignments. This is true across all areas of private equity.
- The advent of larger funds and new strategies is creating increased competition for talent, particularly at the partner/managing director level.
- At the same time, we are seeing an increase in retirements among managing partners and partners/managing directors at private equity firms, and we expect that trend will continue.
- In addition to their effect on employment levels at PE firms, retirements are spurring the growth of family offices as these retiring professionals focus their efforts on their own wealth.
Investment professionals: Compensation trends
- More than half of respondents (56%) reported an increase in base salary from 2018 to 2019, a slightly lower figure than the share of respondents (59%) whose base increased from 2017 to 2018.
- More than three-quarters of respondents (77%) indicated that their bonus increased from 2017 to 2018, the latest year for which data are available.
- Among those respondents who experienced an increase in 2019 base salary, 74% reported an increase of up to 20%, down from 77% in last year’s report.
- Of those reporting an increase in 2018 bonus compared to 2017, 14% had an increase of more than 50%.
- The mean of total cash compensation by AUM soared for managing partners at firms in the $6.00 billion to $9.99 billion range. There were also notable gains for managing partners at firms in the $2.00 billion to $3.99 billion range.
- For 68% of respondents, bonuses are discretionary. Most bonuses are still paid in December.
Carried interest provisions
- While carry remains uncommon at the associate/senior associate level, almost all of the investment professionals at more senior levels reported receiving carry.
- For more than half of investment professionals at every level, carry vests on a fund basis, rather than a deal-by-deal basis. This is true for 89% of all managing partners, compared with 66% of all associates/senior associates.
- For the majority of investment professionals, it takes five years for the maximum amount of carry to vest.
Co-investment eligibility and rights
- Almost all investment professionals have co-investment eligibility. Co-investment is fund-based for 57% or more of respondents at each level.
- A smaller percentage, generally 14–20% for most levels, is deal-based. The percentage of deal-based co-investment eligibility is highest among associates/senior associates (38%).
- Many investment professionals are provided with leverage on the dollars they invest, ranging from 40% of those at the associate/senior associate level to 48% of those at the vice president and principal levels.
This year, for the first time, respondents were asked to indicate whether they considered themselves to be receiving appropriate remuneration for their efforts. We found that across levels of seniority, investment professionals who believed they were underpaid were more often receiving compensation on the lower end of the scale reported in the survey than those who felt their pay was fair. Many of those who thought they received fair compensation were actually in the top quartile among their peers.
To read the full report, flip through the interactive version above or click the download button for the PDF.
About the authors
Jonathan Goldstein (email@example.com) is the regional managing partner of Heidrick & Struggles’ Private Equity Practice for the Americas; he is based in the New York office.
John Rubinetti (firstname.lastname@example.org) is a principal in the New York office and a member of the Private Equity Practice.
The authors wish to thank Mohd Arsalan and Samantha Lassoff for their contributions to this report.