Brief Overview of Latest Trends in PE and VC Fund Managers’ Compensation

MM&K has recently conducted its annual Pulse Survey of the latest trends in the world of PE and VC Fund Managers’ pay and staffing levels. Perhaps not surprisingly, many firms were somewhat distracted by the Lockdown and the effect this was having on their staff and their working patterns.

Notwithstanding this, we were able to gather a reasonable amount of data, sufficient to make the following assessments:

1. Just one third of firms saw some increases in the bonus levels of their non partner investment professionals compared to 2019, and these increases tended to be not significant. For most firms, bonuses stayed pretty much at the same level for Investment directors, associates and analysts.

2. An even smaller percentage of firms saw any upward movement for partners.

3. 67% of firms indicated that they were expecting to increase the number of their associates and analysts during 2020, while half of firms were expecting to increase the numbers of their investment directors and junior partners.

4. These statistics are in contrast to the situation with administrative/support staff where only 15% of firms are expecting to increase their numbers.

For all the firms that participated in this pulse survey, they did so after scale of the Covid-19 pandemic was pretty well known.

From our 2019 survey, 54% of PE and VC firms pay their annual bonuses either in December or January, whilst another 31% pay them in February or March. From what we have heard in the industry, for those firms that did not pay their bonuses until March, many of them did decide to scale back their bonuses because of Covid-19. So we are not that surprised by the bonus statistics shown above.

One important reason for the scaling back of bonuses was the recognition by firms that they were going to need to recruit more staff, particularly at the associate and analyst levels, to help deal with the additional workload that the Covid pandemic was going to bring in. This additional workload that was becoming evident, was being driven by two factors, one relating to the need to monitor more closely and provide extra support to their existing portfolio businesses, the other to the need to research, identify, carry out due diligence and execute new deal opportunities that were expected to be coming up (albeit later in the year) at potentially attractive prices.

There is no question that the first of these factors started to happen some time ago, during March. However, the jury is out in respect of when and if the Covid pandemic will result in lots of new deal opportunities coming through at attractively low prices. Some new deals are happening at the moment, but not that many and certainly less than in 2019. We expect that Q3 will remain pretty quiet with Q4 seeing some opportunistic buying by those houses that are willing to take perhaps a bigger risk than normal. Much of course will depend on whether the easing of lockdown in western Europe continues successfully, without any new spikes and with increasing confidence returning to markets and to the deal doers.

We have not (yet) seen much evidence of firms going out into the market to recruit a whole raft of associates and analysts. If this is going to happen, we believe it is most likely to do so towards the end of Q3 when there will hopefully be much greater clarity about the long term effects on businesses and the economy generally of this ghastly virus and when the new deal opportunities really start to appear.

And of course, if it does happen, it will be interesting to see what effect this would have on the pay levels for these more junior investment professionals.

The 2020 MM&K/Holt European PE and VC Compensation Survey Report, which is supported by PEI Media, should shed some light on this question, as well as on many others, when it is published later this year, in October.

For further information about the issues raised in this article or to discuss any questions you may have, please contact Nigel Mills or Margarita Skripina.

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