Private Equity Firms on the Hunt for CEOs, PE Salaries Rising
As the economic crisis continues to unfold and layoffs and cost cutting plague the financial sector, private equity is bucking the trend. The Private Equity Analyst-Holt Compensation Study shows that private equity firms of all types - buyout, venture, mezzanine - continued to hand out generous increases in compensation in 2007 and into early 2008. Moreover, the report finds that hiring was also strong. Right now, Mitch Feldman, President of executive search firm, A.E. Feldman, says that CEO jobs are opening up as PE firms, preparing to take control of distressed companies, look to hire chief executives to bolster teams that manage troubled businesses. A recent FT report underscores this view adding that banks are also looking to hire PE executives. “The hiring spree comes in spite of the push by many banks to shed tens of thousands of jobs in other areas of their business, particularly investment banking,” states the FT. The report quotes Philip Davidson, Head of Restructuring at KPMG, as saying, “The idea is to hire people who can actively manage these companies and sit on their boards to nurture them along and put the right managers in.”
CEOs in Demand
A.E. Feldman says CEOs are needed to run the companies that private equity firms are looking to buy, particularly in energy and infrastructure. The FT also notes that private equity executives are in demand as banks add to their so-called “work-out” teams to operate troubled companies. The trend, which began last year, has accelerated since the credit crisis continues to unfold. According to the FT, since the 1990s banks have realized that a key way to recapture value lost in a distressed situation is to take a stake in the company and steer a turnaround.
Following the Money
For many types of PE firms, compensation grew even faster last year than it did in the go-go year of 2006, despite a dramatic turn for the worse in deal-making and exits in the second half of 2007, according to The Private Equity Analyst-Holt Compensation Study.
The study finds that salaries for North American private equity professionals rose 5.3% to $200,000 from $190,000 the year before. Including bonuses, compensation also rose by 25% to $375,000 from $300,000. Moreover, once carried interest is included, total compensation packages rose by 27.3% to $401,000 from $315,000.
Considering just the compensation packages of senior investment professionals…managing general partners, senior partners and partners at buyout firms posted median compensation including salary, bonus and carried interest distributions of $1.3 million - an 18% jump. At venture firms, this figure was $956,500, up 37%.
Looking ahead, although the future remains uncertain, the study concludes the PE industry’s attempts to diversify and growth in assets under management in recent years may keep compensation afloat for the time being. The long-term nature of private equity also provides some cushion. The report contends that funds with 10-year lives can continue to draw management fees throughout that period, meaning it will be some time before a slowdown in fund-raising will directly affect firms.
The study also reveals that firms remain surprisingly optimistic about hiring and staffing…and as long as demand for talent remains strong, compensation is likely to trend higher. Only 5% of respondents indicate that their staffing levels are likely to decrease this year from last, and far more said they continue to expand.
Schwarzman: PE Outlook Bright
Blackstone Group Chief Executive, Stephen Schwarzman, says PE firms are poised to outperform most other financial services firms, according to Financial Week. Private Equity Analyst also reports that Blackstone sees opportunities in the current crisis for private equity. The report quotes Blackstone as saying, economic downturns are ‘always wonderful’ in terms of returns. “It’s a once-in-a-generation situation. Deals done in the second year of a recession and the two years after that tend to dramatically outperform deals done at other times,” he says.
Are you a CEO? If you want to grow your career or your company’s bottom line, contact A.E. Feldman’s President, Mitch Feldman, today!
