MM&K begins work on its 2021 PE and VC Compensation Survey

January 25, 2021

In October last year we published our 2020 PE and VC Compensation Survey Report which went out to all the participant firms.

The survey covers both short-term and long-term aspects of pay and incentive practice in the private equity, venture capital, infrastructure and real estate fund management space, including fund-of-funds and secondaries. The short-term compensation concentrates on cash, covering base salary and annual bonus levels as well as the design features of annual bonus plans in this sector.

The long-term aspect concentrates on the design and structure of the carried interest and co-investment plans, the general partner commitment requirements and equity participation in the fund management entity and/or the parent company. Emphasis is placed on the levels of carry available to the house and the management team and how this is split between the partners, the investment executives and the back office.

Last year’s European survey had over 40 different firms participating in it, providing information on their own investment strategies, their fee income levels and their reward policies, as well as detailed compensation data on all their partners and employees covering over 1,300 incumbents, comprising a mixture of investment and back office roles.

Our North American survey had over 100 participating firms providing data on circa 5,000 incumbents.

One of the most interesting findings that we were able to report from both surveys was just how buoyant the “Alternatives Sector” was in 2020, especially PE, VC and Infrastructure.  Whilst they were all clearly affected by the Covid pandemic, mainly in terms of having to pay significantly more attention to their existing portfolio businesses, this did not stop the industry from raising new funds aplenty and further increasing their fire power.

We are expecting 2021 to be another busy year for the European PE and VC Sectors.  Industry commentators are already predicting that European private equity deal-making will set a record high in 2021, as firms look to deploy some of their vast sums of dry powder with some cautious aggression, following what they are hoping will be a recovery from the coronavirus pandemic.

Our 2020 survey suggested that firms were gearing up for this towards the end of 2020 with over 60% of firms expecting to see their investment professionals’ headcount increase again in 2021.

More than ever, firms will need to have a good steer in terms of what the market and their competitors are doing regarding pay and bonuses for their investment teams.  We would like to remind our readers that our 2020 survey is available for purchase by participating firms and this includes new participants who commit to participate in 2021.

It is at this time of year that we look at the survey and consider what changes we should make to it to reflect what has happened in the past twelve months and what our participating firms are wanting to see covered in this year’s survey.

One area of focus that we will be adding to our 2021 survey is the whole area of responsible investing.  Environmental, social and governance (ESG) investing has come a long way in the PE industry over the last few years.  The asset class has in the past been driven by financial returns, first and foremost.  But today’s investors are recognising more and more the value of a good ESG policy as the foundation of sustainable long-term performance.  With this in mind, the alternative investment community is paying much more attention to the ESG credentials of the managers and firms they are supporting.  We will be taking a closer look at this whole area of ESG policy in the PE, VC and Infrastructure world in next month’s newsletter, but suffice it to say for now we will be seeking to gather some detailed insights into the approach firms are taking to ESG in our 2021 survey.

Another area we will be concentrating on is the make-up of the private equity investment professional teams in our participant firms.  Evidence suggests that investment titles have been changing over time, and expectations of previous experience and professional qualifications have also changed.  One interesting comment that we have heard is that they no longer require or even expect any new recruit to have an MBA, for example.

For further information contact Nigel Mills or Margarita Skripina

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