COVID-19 and its impact on pay in the UK’s Private Equity / Venture Capital Industry
As with all parts of the financial system, this virus pandemic has created huge challenges for private equity and venture capital fund managers, management teams and employees of investee companies, as well as for institutional investors. PE and VC fund management teams are working tirelessly to guide and support their portfolio companies.
From our conversations with our Private Equity friends and clients, for the most part their biggest concern at this time is for their investee companies. Of course, they are not able to visit them and this has created issues. Interaction with the businesses they invest in is crucial for PE and VC fund managers in helping them to make critical investment decisions; to what extent do they need help, whether in terms of advice, regular communication or a new injection of funding?
In our survey published in October last year, a significant majority of participating firms were expecting to increase the size of their investment teams in 2020. Our perception is that, for most firms, new recruitment of investment professionals has been put on hold.
Institutional investors are also very concerned, understandably, about the effects of the pandemic on their fund investments. They are requiring regular information flow, as well as regular financial updates. Hence the need for more IR and finance roles in the industry. We hear that there is some activity in the PE and VC recruitment arena – a number of firms are needing to bolster their finance and their investor relations functions at this time to help deal with this extra workload.
From what we are hearing in the market, very few new deals are happening at present. Those that are in train are for the most part being delayed and in many cases valuations are being reassessed.
There is, however, no sign as yet that any firms are looking to let go of any of their investment team members. It is all hands on deck for most firms, albeit largely firefighting (in their portfolio companies) rather than trying to find new deals.
This will come later. It will take some time before a sense of stability will return to the deal doing process and before valuations can be looked at and agreed in a reliable manner. This may not happen until Q4. But once this starts to happen, we are sure that there will be many interesting opportunities for PE houses to find and acquire new investments at attractive prices.
The fact that there is so much dry powder in the industry means that for the large majority of fund managers, they will need to retain all their existing talent and in due course they will need to recruit new talent. They will need more people to execute the new deals that surely will come through, as well as to help look after their existing portfolio of wounded investments which will take some time to recover from this economic bombshell.
We would expect that bonus levels for the current year for below partner level grades are most likely to be at around the same level as they were for 2019. Firms will need to reward their investment teams who will in most cases be having to work extremely hard throughout these difficult months.
2020 will be a tough year for many PE and VC investment professionals. We expect that the partners in these firms will recognise this and will realise that they will need to reward them accordingly. Otherwise we suspect that the more adventurous and the most talented of them will look elsewhere.