Remuneration trends in the Private Equity Industry: UK / Europe vs N. American perspective

2023 Private Equity landscape in UK/Europe:

2023 has proven to be a year of correction for European market in terms of deal value figures after an unprecedented level of activity in both 2021 and 2022.

Despite the fund count hitting its lowest point in over a decade, PE fundraising was at nearly record levels in 2023. This outcome may be unexpected for many, considering the industry’s challenges with macroeconomic headwinds and the prevailing belief that fundraising had slowed down in the latter part of 2023. The main factor here is that 54.0% of capital raised can be attributed to only five funds.

Exit activity during the first half of 2023 was subdued and, when exits did occur, they frequently took the form of mega-exits. The overall exit value for 2023 was only 1.1% lower than the figure for 2022. However, when excluding mega-exits, which accounted for approximately 60%, the exit value for 2023 was 24.5% lower than in the preceding year. Due to the underwhelming share price performance of recently listed companies, businesses opted to steer clear of going public and postponed their plans due to the market’s unpredictable volatility. In 2023, only 15 private equity exits through initial public offerings (IPOs) were recorded, marking the lowest count in since 2009s.

2023 Private Equity landscape in N. America:

The US private equity industry recently navigated its most challenging year in terms of combined deal activity since 2016. This year saw a 29.5% decline in deal value, reaching its lowest level since 2017, excluding the pandemic-induced lockdown in 2020. With the number of deals also in decline.

In 2023, exit activity in the US private equity sector declined further, as sponsors grappled with prolonged inflation and unfavourable valuation trends. Exits for total of 1,121 companies were either announced or took place. Total exit values in 2023 were 17.7% below pre-pandemic averages and 33.4% lower than historical averages. Exits declined across all segments of the market, with the number of exits via public listings being particularly small. Given that private equity firms typically avoid being forced into selling and prefer to retain promising assets for extended periods, the fatigue in the PE exit markets could persist until the end of 2024.

So what does it mean for the remuneration trends in Private Equity industry.

Our recently published reports concentrate on the UK/European and North American markets, providing comprehensive insights into the adopted remuneration policies and quantum, not only within Private Equity but also Venture Capital firms. More than 150 firms participated in our 2023 survey, providing valuable data on more than 6,000 individual incumbents.

2% management fees continue to be the gold standard in both the UK/Europe and North America. Interestingly, in North America, around 60% of general partner fees (revenue) find their way into payroll expenditures.

Over half (57%) of the surveyed US companies expressed their intention to hire MBA graduates, while the UK/European practice is slightly lower this year, with only 40% confirming the same.

When comparing year-on-year salary increases among investment professionals at both Partner and Non-partner levels, US Private Equity firms witnessed a remarkable 17% surge at the Vice President level (PE05a). In contrast, salary increases in UK/Europe were more moderate, with the highest increase observed at Senior Associate level (PE05b) reaching 13%, and a median salary increase at partner level of approximately 2%.

In terms of staffing levels, half of UK/European participants intend to expand their number of investment professionals in 2024, whereas only 22% of firms in North America have similar plans. Projections for an expansion of support functions range from 30% to 40% across both regions.

For more insights into the 2023 MMK-Holt Private Equity and Venture Capital European Compensation Report, please click here.

For more insights into the 2023 Holt-MM&K Private Equity and Venture Capital N. American Compensation Report, please click here.

For further information, please contact Margarita Skripina.

Sources:

Deal activity data: Pitchbook 2023 Annual PE Breakdown;

Remuneration data: 2023 MM&K – HOLT Private Equity and Venture Capital Compensation Report.

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