Private Equity Compensation

Private Equity Compensation Defies Credit Crunch

The number of private equity deals have declined as the credit crunch hurts the financial industry, but in terms of compensation and hiring private equity has remained strong in 2007.


According to a Private Equity Analyst study, the salaries for North American private equity professionals rose by 5.3%, from $190,000 rose to $200,000 in 2006. When you factor in bonuses, private equity compensation increased 25%, to $375,000. If you thought that was high, there is still the remaining factor of carried interest which brings the total to $401,000 from $315,000.

Hiring increased too, of the 167 private equity firms surveyed, the majority of the firms responded that they were adding staff more than reducing. This compares pretty impressively to the investment banks that have been cutting staff with mass lay-offs.

Other optimistic notes from the study are that of the participating private equity firms only 5% expect to diminish in size. Also, compensation consultants expect the pay for entry-level positions to stay the same or even rise in 2008.

So why is the private equity industry surviving while other financial sectors are making huge cuts in staff and salaries? A major factor may be the cushion of management fees. Private equity firms receive notoriously high management fees that are paid throughout the life of the deal, which sometimes lasts at least 10 years.

The study is not completely optimistic--the marked decline in deals is worrying many in the industry for instance--but in a struggling economy the study reveals good news for those considering entering private equity and those currently working at a private equity firm.

Source: WSJ and PEA

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