Private Equity Salary Cut

Salary of Private Equity Dealmakers Could Drop 75%

The trouble in the financial sector inevitably promotes caution in the private equity industry, especially among buyout firms and some believe that this will cause major reductions in the salaries paid to dealmakers at buyout firms. Bloomberg news reports that private equity salaries could face major reductions--as high as a 75% cut--as a result of the credit crunch.

British financier Guy Hands makes the projection based on the idea that private equity deals will have a longer life than before--an average of 8 years--as firms exercise more caution. This would inevitably lead to huge cuts in the salary of private equity dealmakers who have been compensated very well in the past as more buyouts were executed. Hands believes that the current economic crisis will force private equity firms to reevaluate their strategy and focus on safer, more long-term focused deals--a sharp departure from the way buyout firms have operated up until this economic decline.

“Compensation for everyone in the financial services industry is clearly going to fall over the next few years,” Mr. Hands told Bloomberg. “This will be particularly true for private equity general partners who are having the reduction, both because of the time it takes to invest and because of the time it takes to harvest.”

Source: Bloomberg

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