Private Equity EMEA Compensation Survey - Heidrick & …/media/Publications and Reports/2014-Private... · Private Equity EMEA Compensation Survey Executive Report. 2 2014 EMEA Compensation

2014

Private Equity EMEA Compensation

SurveyExecutive Report

2

2014 EMEA Compensation Survey

IntroductionIn June 2014 Heidrick & Struggles invited over 7000 executives working in the European Private Equity industry to participate in an online survey of compensation. This annual survey follows the successful 2013 edition.

We received 574 useable responses (a slight increase on 2013) from professionals working across the PE value chain: executives who raise and retain capital, executives who invest this capital and those who work to improve returns, as well as the CFOs, General Counsels, and CHROs of their funds. This represented a response rate of 8% and we would like to take this opportunity to thank all those who completed the survey.

The largest respondent group was Investment Professionals (77% of total participants) and this report focuses primarily on their compensation levels and trends. As well as analysing investment professionals as a group we have differentiated between strategies; Buyout, Secondaries, Fund of Fund, Co-investment, VC and Credit (with an emphasis on illiquid and distressed).

We gathered further data on fundraising professional and operating professional compensation and have reported on it where we had achieved significant response rates. For other functional specialisations we did not gather sufficient information.

Should you wish to discuss the survey in greater detail please do not hesitate to contact us.

Richard Thackray Tom Thackeray Kanika WaliaPartner Engagement Manager Senior Research Analyst

[email protected] [email protected] [email protected]

On ConfidentialityThe survey has been conducted on an anonymous basis for the individuals and their employers and Heidrick & Struggles has kept separate the data relating to name and firm from their compensation.

3


Table of ContentsIntroduction 2

Market Backdrop 4

General Observations on Compensation Trends 5

Respondents Cash Compensation Development 62012-2014

Mean Base, Bonus & Carry by Fund Size 2014 7Investment Professionals only

Mean Base, Bonus & Carry 8Fundraising and Investor Relations Professionals only

Mean Base, Bonus & Carry 8Operating Professionals only

Years of PE Experience & Compensation in 2014 vs 2013 9Investment Professionals only

Years of PE Experience & Carry 2014 10Investment Professionals only

Comparison of Compensation across Europe and Africa 112014 for Investment Professionals only

Investment Strategy Mean Base, Bonus and Carry 2014 12Investment Professionals only

Respondents PE Experience Demographics 13Investment Professionals only

Split of Respondents by Educational Qualification 13All Professionals

4


Market Backdrop• Further crystallisation of funds who are the ‘winners’ and ‘losers’.

• Late 2013 and H1 2014 has seen the first ‘green shoots’ since the crisis with a few first time funds raising significant capital.

• The employment market remains subdued. However, there are a small number of senior roles being recruited in Europe. Demand from professionals still greatly exceeds the supply of roles.

• In a market with high asset pricing and readily available debt, firms are struggling to identify investment opportunities to pursue with conviction.

Responses have varied but a few trends emerge

• The large cap sector is investing again in advisor and executive networks to create advantage in sourcing and auction processes.

• In the middle market and below there is a focus on “hunters” who are able to source effectively.

• Certain sectors seek professionals with deep industry expertise:

– Technology

– Mining, Energy & Natural Resources

• Proven “Deal Captains” remain the most typically “traded” seat in most firms in European Private Equity.

Accordingly we were interested to understand compensation with the industry in detail and to answer questions such as:

• How has pay developed recently?

• How has pay developed year on year (2013 vs 2014)?

• What is the relationship between fund size and compensation?

• In there a variation between strategies?

• Is there a difference between European Markets in compensation?

• Is there a variation across the value chain of executive roles in compensation?

5


General Observations on Compensation Trends

Base Salary 2014 vs. 2013 Bonus 2014 vs. 2013Breakdown of Respondents Reporting

an increase in 2014 Base Salaries

No Change 98

33%

Decrease 6

2%

Increase 19665%

No Change 289

54%

Increase 20538%

Decrease 448%

5.7%

37.6%

47.4%

6.7%

2.6%

1 - 10%increase

11 - 20%increase

21 - 50%increase

51 -100%

increase

Morethan

100%increase

A higher proportion (65%) of respondents reported pay increases in our 2014 survey versus 36% in 2013. Scale of reported increase was similar, as was changes to bonuses.

65% of respondents received base salary increases between 2013 and 2014. 38% also saw an increase in bonus levels reflecting continued increasing rewards for top performers at good firms.

Time series data is analysed later in the report (page 9)

6


Respondents Cash Compensation Development 2012-2014

€’000) 2012 2013 2014

CAGRTotal Comp

2014

CAGRTotal Comp

2013

All ProfessionalsMean Base

Mean Bonus

Total Comp

Mean Base

Mean Bonus

Total Comp

Mean Base

Mean Bonus

Total Comp

Managing Director Level: Managing Directors, Managing Partners, Senior Partners, Partners

271 267 538 290 267 557 286 328 614 6.9% 3.8%

Principal Level: Principals, Vice Presidents and Directors 146 153 299 159 147 306 160 145 305 0.9% 7.1%

Associate Level: Associates and Analysts 82 57 139 90 65 155 82 58 140 0.3% 15.6%

€’000) 2012 2013 2014

CAGRTotal Comp

2014

CAGRTotal Comp

2013

All ProfessionalsMean Base

Mean Bonus

Total Comp

Mean Base

Mean Bonus

Total Comp

Mean Base

Mean Bonus

Total Comp

Managing Director Level 268 281 549 287 272 559 298 329 627 6.9% 3.3%

Principal Level 145 155 300 159 150 309 159 147 306 1.0% 7.8%

Associate Level 83 58 141 90 66 156 82 62 144 0.6% 14.8%

Self reported compensation development for Principals and Associates has grown at less than the rate of inflation and is markedly different than our 2013 summary; suggesting strong cost management within GPs: The reported CAGR for the Associate cadre total compensation was 14.8% in 2013 versus 0.6% in 2014. Given the strong response rate in the survey for this group this is a notable trend.

Managing Director’s compensation has increased above inflation and was double the reported increase in 2013.

7


Mean Base, Bonus & Carry by Fund Size 2014 Investment Professionals only

Man

agin

g D

irect

or L

evel

<€250m 251-500 501-750 751-1000 1001-2000 2001-3000 3001-5000 5001-7000 7001-1400

Proportionally make the stacked chart 218.9 mm mm (to �ll width)

Align to bottom/or 1mm from axis text

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recolour

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BUBBLES: align 0mm to top of bar. Label 0mm above. Do not resize bubbles

3.7

7.5

11.6

11.38.0

14.8

19.7

17.8

16.8

220 282420

278 356 294 306 313423

98

256

473

228

283 408

673

338

377

Prin

cipa

l Lev

el

<€250m 251-500 501-750 751-1000 1001-2000 2001-3000 3001-5000 5001-7000 7001-1400



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1.52.0 1.9 1.0

2.43.5 5.4

5.510.0

119 140 142 149 171 201 160 1904 18451

106 114 108177 171 175

234 251

Ass

ocia

te L

evel

<€250m 251-500 501-750 751-1000 1001-2000 2001-3000 3001-5000 5001-7000 7001-1400

0.71.3 0.6 0.1 1.0 1.4 1.1 0.5

0.1



Update x axis

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56 76 98 73 79 99 85 98 8827

39 69 37 71 65 89 90 62

This analysis was the most popular data set from our 2013 survey as it helped individuals ‘benchmark’ their compensation, allowing the inquisitive industry participant to answer the question “where do I stand versus my peers?”

Whilst we have observed some variations in the data as segmented by fund size, the overall picture is consistent with our 2013 report.

Carry - € at work: The expected return on total carry participation across all vehicles. Based on achieving a net 2x return (above hurdle and after fees) in a vehicle charging a 20% performance fee.

Mean Carry 2014 (€ Millions)

Mean Bonus 2014 (€ Thousands)

Mean Base 2014 (€ Thousands)

Fund sizes in € Millions

8


Mean Base, Bonus & Carry Fundraising and Investor Relations Professionals only

Ass

ocia

te L

evel

88290.3

Prin

cipa

l Lev

el

149

148

1.1

Man

agin

g D

irect

or L

evel

275

399

8.8

Compensation for fundraisers and investor relations professionals continues to reflect a trend observable from last year’s survey; Senior practitioners are paid on a similar cash basis to their peers but lag behind on carry (by approximately 50%). This data incorporates 66 respondents.

Mean Base, Bonus & Carry Operating Professionals only

Ass

ocia

te L

evel

69

21

Prin

cipa

l Lev

el

164

138

1.9

Man

agin

g D

irect

or L

evel

263

351

7.3

New for 2014’s survey is compensation data for Operating Professionals drawn from 43 respondents. It is notable that junior operators are compensated at lower levels than their investment professional peers for base, bonus and carry.

Senior Operating Professionals receive a comparable salary, but lower bonus and carry share, whilst principals are compensated at similar levels to their investment professional peers across all forms of compensation.





9


Years of PE Experience & Compensation in 2014 vs 2013 Investment Professionals only(€’000) Mean

Years of PE Experience Base BonusTotal Cash (Base

+ Bonus 2014)Total Cash (Base

+ Bonus 2013)% change in total

cash since 2013

0-2 86 66 146 126 16.1%

2-4 113 86 191 176 8.5%

5-6 159 120 277 254 9.3%

7-8 181 171 348 331 5.2%

9-10 233 220 448 415 8.0%

11-12 278 317 595 535 11.1%

13-14 228 234 462 389 18.7%

15-16 274 442 715 696 2.8%

17+ 248 337 585 625 -6.4%

When talking with aspiring entrants to the industry we often counsel that Private Equity is an “Endurance Team Sport”.

Wealth is created through securing a seat at a good firm, delivering good performance and progressing within the firm. There is notably higher growth in compensation for senior practitioners; which we feel reflects the general industry economic model.

10


Years of PE Experience & Carry 2014 Investment Professionals only

The graph above illustrates the relationship between carry development and experience and the percentile ranges.

Crucially we do not match compensation data to the source fund’s performance so cannot comment whether there is a strong relationship between fund performance and compensation.

1.14 1.413.90

4.21

5.29

10.61

6.89

9.44

13.43

0.35 0.33

0.801.18 1.30

2.38 2.38 2.08

5.83

0.85 1.002.00

2.653.00

8.00

5.00

8.20

9.70

1.98 1.984.00

5.05

6.00

10.25

7.75

13.88

18.05

0-2 yrs 3-4 yrs 5-6 yrs 7-8 yrs 9-10 yrs 11-12 yrs 13-14 yrs 15-16 yrs 17+ yrs


Mean

Median

25th Percentile

75th Percentile

Switzerland

Africa

686351

Central & EasternEurope

7173

Nordics

578784

966781

Benelux

627863t Germany

769681

Spain

617478

France

65 9989

United Kingdom

100

100

100Mean Bonus 2014

Mean Base 2014

Total Comp with ref to that of UK

Prin

cipa

l

Asso

ciat

e

MD

Heidrick & Struggles 11


Comparison of Compensation across Europe and Africa2014 for Investment Professionals only

Responses from countries are grouped as:

• Africa: Nigeria, Republic of Tunisia, Kenya, Egypt and South Africa

• Benelux: Belgium, Netherlands and Luxembourg.

• Central & Eastern Europe (CEE): Belarus, Hungary, Poland, Romania, Russia and Turkey.

• Nordics: Denmark, Norway, Sweden and Northern Europe.

Europe continues to show significant variability for cash compensation dependent on geography.

London remains the most highly compensated market.

In the Nordics, Benelux, Germany and Spain, junior investment professionals are rewarded comparatively better to London market highs than their senior compatriots.

In France and Africa compensation levels remained linked to seniority.

12


Investment Strategy Mean Base, Bonus and Carry 2014Investment Professionals only

Man

agin

g D

irect

or L

evel

312220 209 233 217 273

335328 347

440

104

483

Buyout Secondaries Fund of Fund Co-Investment Venture Capital Credit

11.4

4.5 4.4

3.6

3.8

8.3

Prin

cipa

l Lev

el


161 153 135 149 149 132

153 108 88 128 123 132

3.42.9

1.02.0 1.1 2.4

Ass

ocia

te L

evel


84 74 73 71 58 7367 35 37 40 16 44

1.00.3 0.2 0.9 0.5 1.4

This data allows us to show the trends between various private capital strategies.

Whilst there is a clear trend towards higher margin products allowing funds to compensate at higher levels, we were surprised at the gap between primary and secondary strategies and co-investments, which are compensated closer to stand alone GPs

The strong compensation in Credit Funds is notable and we feel is driven by market demand for talent in this sector.





13


Respondents PE Experience DemographicsInvestment Professionals only

Total years of PE

Experience

Number of Investment Professional

Respondents 444 Investment Professionals

Less than 2 63

17+4%15-16

4%13-145%

11-127%

9-1011%

7-819%

5-616%

2-420%

Less than 214%

2-4 87

5-6 71

7-8 85

9-10 48

11-12 29

13-14 23

15-16 18

17+ 20

Total 444

Graduate

Graduate

MBA

JD/Solicitor

ACA/CPA

Group 4291

Group 311

Group 222

Group 565Group 6

3

Group 7168

Group 12

Split of Respondents by Educational QualificationAll ProfessionalsOn the basis of the responses related to their educational qualifications, the respondents can be broadly classified under the following Groups

Respondents with MBA are as follows:

• Group 1: 2 respondents with MBA and both ACA/CPA & JD/Solicitor Qualifications.

• Group 2: 22 respondents with MBA and just ACA/CPA Qualifications.

• Group 3: 11 respondents with MBA and just JD/Solicitor Qualifications.

• Group 4: 291 respondents with just MBA and no other additional Qualifications.

Respondents without MBA are as follows:

• Group 5: 65 Non-MBA respondents with just ACA/CPA Qualification.

• Group 6: 3 Non-MBA respondents with just JD/Solicitor Qualification.

• Group 7: 168 Non-MBA respondents with no additional Qualification.

Richard ThackrayPartner

+44 20 7075 [email protected]

Tom ThackerayEngagement Manager


Kanika WaliaSenior Research Analyst

[email protected]

Elizabeth HammondExecutive Assistant


Heidrick & Struggles is the premier provider of senior-level Executive Search, Culture Shaping and Leadership Consulting services. For more than 60 years we have focused on quality service and built strong relationships with clients and individuals worldwide. Today, Heidrick & Struggles leadership experts operate from principal business centers globally.

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Documents

Private Equity EMEA Compensation Survey - Heidrick & …/media/Publications and Reports/2014-Private... · Private Equity EMEA Compensation Survey Executive Report. 2 2014 EMEA Compensation