Private-Equity Bonuses Booming

Bonuses and compensation may be dropping all over Wall Street and Main Street but in the corner of the financial universe known as private equity, massive pay packages are still being doled out. No word on whether this practice will extend to the “lucky” Lehmanites at Neuberger Berman after they’re scooped up by Bain. Or Carlyle. Or TPG. Or Blackstone…

The Deal: Layoffs have begun to hit both Wall Street and Main Street, while the bonus pool is greatly diminished for those who do still have jobs. It’s ugly out there and only going to get worse. Yet the employment and compensation picture is not all doom and gloom. Or at least not for everybody. A corner of the financial industry has apparently been completely unscathed and — get this — is reporting increases in compensation across the board and for nearly every job function.

I am referring here to the private equity industry, which “was able to withstand the economic turbulence that negatively affected many other financial services sectors,” according to the 2009 Private Equity Compensation Report by Glocap Search LLC and Thomson Reuters. Indeed “not only were there no major categories in which compensation declined,” says the report, but “compensation for nearly all titles covered by the report showed some increases.”

Got your attention yet? Good. The total cash compensation (base salary and cash bonus) for senior associates at the largest buyout funds (those with $5 billion or more in assets) is now $435,000, a 4% increase over their 2007 levels. (Don’t be misled by the “senior” in senior associate; these are first year M.B.A.s, says the report.) At the principal level, large buyout funds pay an average total cash compensation of $885,000, also a 4% increase from last year. Bonuses for principals at these funds rose 6% to an average of $607,000, which is included in the $885,000.

All of which begs the question: Just where are PE firms getting all this money? The Glocap/Thomson report seems to fly in the face of nearly everything that has been reported about PE in general and their compensation/retention trends in particular…

Instead, the driving force behind the increases in compensation is PE’s growing asset base. Yes, deal volume has slowed considerably, but 2008 has been a relatively strong year for fundraising. When combined with 2007, which set a record for capital inflows, private equity funds continued to have the resources to maintain compensation levels and in many cases increase them, according to Glocap. This jibes with what Blackstone reported in their last quarterly: AuM of $119.4 billion, up 30% from a year ago.

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