Buyout Compensation

Big Buyouts Cut Compensation, Small Ones Increase

While professionals at large buyout firms still have the best compensation in absolute terms, pay in large private equity firms took the biggest cut year-over-year in 2009. The latest edition of the Private Equity Analyst-Holt Compensation Report categorized firms into large (+$1 bil in assets), medium ($300 mil-$1 bil) and small (below $300 mil).

The big buyout firms are able to attract top talent with very competitive compensation packages (to put it mildly) but now these firms are having to reduce this paycheck while the smaller and mid-level private equity firms are actually increasing compensation. There are a couple different implications: veteran talent may leave private equity to hedge funds (a few funds started hiring again last week) and the surviving investment banks. This opens the door to younger private equity professionals who have been hoping to get into the larger buyout firms and won’t mind the smaller salary than they would have received last year. It’s still about $50k better to work with the big guys than with smaller buyout firms. Another outcome is that the small and medium buyout firms have more leverage for recruiting staff. Now, even a medium-sized private equity firm can entice a candidate saying, “The big firms are cutting pay by 14% while we are increasing ours by 20%.”

Professionals at large buyout firms received a cut of 14% to their overall compensation (salaries, bonuses and carried interest). On the other hand, small and medium-sized private equity firms saw increases in compensation by 4% and 20%, respectively. Yet even with the reduction, large private equity employees still make $368,000 in overall compensation, more than the medium and small buyout firms by more than $50,000.

The cause for this reduction at the bigger firms–besides simply cutting back in a tough market–is that these firms have made their money largely from management fees. This works fine when investors are interested in investing in new funds and, in a good year, limited partners are usually fighting to get access to the latest fund launched by the big buyout firms. In the recession launching new funds has become increasingly difficult from unreasonable valuations, nervous investors, poor returns and limited lending from banks.

“[Private equity firms] realized ‘we can get pretty fat on management fees if we’re double dipping,”said Denise Palmieri, director of client relations at executive search firm Pinnacle Group International. “The important thing was to raise a new fund before residual fees dropped off from old funds. The only way to continue paying your people and continue your happy lifestyle is to raise a new fund.”

But now it appears to be payback time. The larger firms have been disproportionately impacted by the credit crunch, which brought large deals to a halt long before it began affecting smaller deals. That has hurt the size of their funds and how quickly they can raise them. Through June of this year, mega firms had raised a total of $10.2 billion so far this year, down sharply from $36.6 billion raised in the year-ago period.

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Hedge Fund Recruiting

Hedge Fund Recruiting – 3 Secret Handshakes

When I first glance at your info, there are clues right off the bat that tip me to either keep reading or hit the “delete” key. You might call these “secret handshakes” because top recruiters and hiring managers know them but they’re rarely discussed. Getting these right doesn’t guarantee you the job. It’s table stakes at the highest levels of competition. Here are 3 hallmarks of “A” players who know the “secret handshakes”:

1. Be Concise. Great people at great companies are concise. They have to be because they’re busy and their time is worth a lot of money. When I see resumes and emails with blathering I know the person just doesn’t get it. Ditto with phone and in-person interviews. A failure to be concise makes you look insecure, inconsiderate, and weak. Cut to the chase.

2. Be Discrete. Great people keep confidences and err on the side of understatement. They avoid gossip and they avoid trashing people or organizations. When ethics demand whistleblowing, they handle it professionally. That means revealing the problem through the proper channels to the proper authorities with no “leaking” and no drama creation. Discrete people are balanced when revealing their own past mistakes – giving adequate disclosure without getting too personal or graphic.

3. Focus On Results, Not Activities. Great people are results-driven. They get excited talking about what they have gotten done. Great people know that preparation, planning, meetings, and process-mapping are meaningless by themselves. Nothing happens until something happens. If the resume details accomplishments and achievements then my interest grows. If a resume limps along with gems like “managed relationships with 200 broker-dealer offices in 4 states” and “oversaw department of 20 people”, I start wondering whether you just like to run up the phone bill and sit on a pile of overhead.

If your resume suggests conciseness, discretion, and results-orientation then content begins to matter. Without these three things, it really doesn’t matter that you went to Stanford or worked at Citadel. Resumes don’t always give a clue to all three “secret handshakes” and that’s okay. No news is good news. But if your resume shows these things, it’s a leg up against the competition. Savvy recruiters gather info on these traits in the phone screen and the in-person interviews, so keep them in mind at all times. These 3 “secret handshakes” are key emotional intelligence competencies: they are common to almost all true “A” players.

- Guest Blogger Marc Goormastic of Goormastic Executive Search

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