The World of Private Equity and Remuneration Therein

The private equity world continues to come up with ever more impressive and somewhat surprising stories.

In the last few days EQT, the Swedish private equity fund management group has IPO’d on the Swedish Stock Exchange, valuing the business at an astonishing €7bn. The shares made an impressive debut, gaining more than 30% in their first day of trading. The offering, more than 10 times oversubscribed and priced at the high end of its range, is one of the largest—and most successful—involving a private equity firm in years. The firm raised close to €1.3bn from the public listing.

EQT manages around €40bn of assets on the behalf of investors, and reported €295m of revenue for the last six months to end of June.

In another story, the word on the private equity street is that Blackstone’s eighth flagship buyout vehicle has raised a record $26 billion – yes $26billion!

And in another story that came out this month, US private equity firm Advent International has won their takeover bid to acquire the FTSE 250 defence and aerospace group Cobham for $5bn (£4bn) after months of negotiations.

There certainly seems to be no slowing down of private equity activity, whatever the doom-mongers are saying about the world economy. The same can be said also for the world’s venture capital community which is also thriving, with record numbers of deals being done and fund raising too.

And to add even more excitement to the alternatives fund management space, a recent headline in an alternative assets’ news publication stated that “A ‘Golden Age’ of infrastructure fundraising is upon us”.

In our minds, all this activity in the PE, VC and Infra space can mean only one thing for remuneration levels in these industries. They are going up and quite a bit faster than the average rate of wage inflation.

With the raising of more and more and larger and larger funds, the fund managers themselves will be receiving greater revenues from management fees. No doubt they will also be looking to recruit more investment professionals.

But perhaps more importantly, these entities will also be in a position to offer larger amounts of carry at work to their partners and managers.

So there is likely to be a dual impact on pay and incentive levels in the industry. Many firms will have more to spend on remuneration. But there will be a scarcity in the supply of talent, especially at the junior partner and investment director levels.

MM&K will be publishing the findings from our PE and VC compensation survey in October. We are pleased to report that we have had the largest number of firms participating that we have had since 2008. We are sure that this is in some part to do with the fact that firms are concerned about their pay levels, particularly for their senior and mid ranking investment professionals.

We look forward to summarising some of our findings from this survey in our next newsletter.

For further information contact Nigel Mills.

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