Pay levels are rising fast in the UK’s PE, VC and Infrastructure fund management industries, but not across the board

MM&K has concluded its short pulse survey on what has happened to pay levels (including bonus payments) so far this year, in particular for the investment professionals, in the private equity and venture capital fund management industries in the UK.

There has been much commentary in the press recently about how the starting salaries for new graduates joining investment banks and magic circle law firms in London have been increasing so dramatically in the last few months.  One recent article says that one such law firm has increased the salaries of its newly qualified (“NQ”) solicitors to £107,500 (from £100,000) – and this marks the third time in a year that the firm has increased NQ salaries.  This compares with the typical starting annual base salary of a new hire MBA graduate into the PE industry (according to our 2021 PE Compensation Survey), of £105,000.

The results of our recent pulse survey indicate that much the same is happening in the private equity and venture capital space, with one firm increasing the salaries of its analysts and associates by 27%.  Overall, the average increase in salary for associates and analyst grade levels was 13% for those firms in the buy-out sector, although it was only 5.5% for those same roles in VC firms.

It is interesting to observe this dynamic – the different levels of salary increase – between the buy-out sector and the venture capital sector.  It is very likely, from our perspective, that it is the buy-out firms that have found themselves head on competing for talent with the investment banks and strategy consulting firms, much more so than the VC firms and this probably goes a long way to explaining this differential.

The differential is not nearly as great for the more senior investment professionals, the VPs, principals and investment directors.  Here we saw VC salaries rising by on average just over 6% while in buy-out firms it was just over 8%.  We would comment that these roles are much less likely to move employers, because for the most part they are well tied in by their participation in the carry, while the more junior roles are often not in the carry at all.

Back-office staff also did pretty well, with average salary increases of 6% across the board.

Turning to bonus levels, again we saw a marked difference in terms of what has happened in the buy-out firms compared to the VC houses.  The average increase in bonus levels for the investment professionals below partner level in buyout firms was over 20% whereas for their VC equivalents, it was just around 3%.

Interestingly, the back-office staff in buy-out firms also did well in terms of bonus increases with an average bonus increase of 28%, albeit one suspects compared to relatively small bonuses for 2020 performance.

The reality is that VC houses are less generous with their bonuses in any event.  This is in large part driven by the fact that their management fee revenues are smaller when compared to the buy-out firms, so the bonus pool (which can only come out of excess management fees) tends to be quite a bit smaller.

One might ask why don’t all the talented associates and VPs in the VC sector go and work for buy-out firms. Well, some do, but others simply do not want to or in some cases do not have the right CV for such a move.  The culture does tend to be quite different between VC houses and buy-out firms.  Those people who work in VC tend to have a much longer term outlook, they (arguably) have greater job satisfaction and (again arguably) tend to work less hours.  But enough of that (someone in the PE space will shoot me down for saying this) – they are really quite different businesses and some are more suited to working in one than the other.

In summary though, for nearly all firms in the PE and VC fund management space, the salaries and bonuses of their investment professionals have increased quite significantly this year.

Looking forward, we are expecting the war for talent to remain a constant threat to buy-out firms in particular.  To find out more in terms of what is happening to pay levels in this sector, relevant firms are invited to participate in our main PE and VC Compensation Survey, the results for which we expect to publish in late September.  For firms that are interested in participating in our detailed 2022 survey, please get in touch with Margarita Skripina or me, Nigel Mills, or click here for more information.

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