MM&K has published its 2019 Survey Report on Compensation in the UK and European Private Equity and Venture Capital Fund Management industry.
Nigel Mills reflects on some of the key findings in the Report which supports the hypothesis that this sector is in boom times.
On 14th October MM&K published its 2019 European Private Equity and Venture Capital Compensation Report. The Report is derived from the Survey that we conducted in the year into pay and incentive practices in the European PE and VC fund management industries. This is the 25th consecutive year that we have conducted a survey of this kind. This year we collected data from 44 different European PE and VC fund management firms who provided us with data on 1,700 incumbents.
This is our most comprehensive survey for a number of years (since 2008) and it has provided us with another fascinating insight into the world of private equity and venture capital fund managers’ pay.
The 44 firms can be broken down as follows in terms of investment strategies:
(i) Buyout, mezzanine, growth capital and infrastructure – 23 firms;
(ii) Venture capital – 16 firms; and
(iii) Fund of funds and secondaries – 8 firms.
Three firms invested in more than one strategy.
Some of the key findings from the survey are set out below.
The headline takeaway is that the market for top quality talent in the sector remains extremely competitive. We see that the sector generally is booming with a large number of firms recruiting, either with a view to simply increasing their headcount to deal with the strength of the business pipeline or in some cases to move into the sector for the first time.
About 67% of firms across all investment strategies reported increasing their investment staff numbers (100% of Venture Capital firms) and, 56% their support staff in 2018.
Around 75% of firms are expecting to increase the number of their investment professionals in 2019, and about 58% are expecting to increase their back-office staff numbers.
The median 2017 to 2018 increase in total short term cash for investment professionals across all investment strategies ranged from 19% to 40% depending on grade, with the more junior positions seeing the largest increases in take home pay. Within these figures it was the more junior positions in the venture capital houses who fared best of all, although across the board Associates and Analysts all saw healthy increases in their take home pay. Part of these increases were the result of generous increases in base salaries (typically between 6% and 12%) but the main component was the increases in bonus levels.
The reason why the more junior roles seem to be seeing the largest increases in their bonus levels is, we believe, a recognition by their bosses that these individuals are the future lifeblood of the business, the rising stars and perhaps the most difficult to retain given the competitive market that they are in.
We are not surprised to see the venture capital investment managers having such large increases in their bonus levels for the 2018 performance year. VC generally had a great year in 2018 with venture capital funds raised in the year exceeding previous highs.
Also, in the UK, venture capital investment increased by 21%, more than double what it was in 2015. 698 companies were venture-backed: a 44% increase.
In contrast to management buyouts which seem to have had a bit of a slowdown, the venture capital industry appears still to be booming with European VCs still deploying capital at a record pace. The total amount of venture capital invested in European companies was up 61% in in the first half of 2019.
It is not surprising to see that over 40% of firms are expecting their bonuses to be paid to their investment professionals for 2019 performance to increase again over 2018. And no firms are expecting bonus levels to fall, either for partners or non-partners.
Next month we will provide some further commentary on the findings from our European Report and also from the North American Report which has also recently been published.
MM&K has had a particularly busy year advising alternative investment management firms on their pay levels and remuneration structures. Our clients this year have included family offices, buy-out and venture capital fund managers and infrastructure fund managers.