Private equity gains ground in talent war.

Sponsored by : SPQR Global Asset Management Corporation.


Private equity gains ground in talent war
ByFrancesco Guerrera and Ben White in New York

Private equity is winning the war for talent against hedge funds and investment banks, luring young recruits with large pay packages in spite of the credit crunch and volatile capital markets, according to new research and industry experts.
Buyout funds’ ability to take advantage of Wall Street’s woes and attract talent is a sign of their resilience in the face of the liquidity squeeze and could help them weather the current deal drought and tough debt markets.
However, news that private equity deal-makers are continuing to add to their wealth while US average wages stagnate could fuel the political backlash against the industry and strengthen calls for higher taxes on their income.
Business school graduates who join a large buyout fund like Blackstone or Kohlberg Kravis Roberts stand to earn more than $400,000 in salary and bonus in 2007-08, plus up to $5m over several years depending on the fund’s performance, according to a new study by the executive search firm Glocap and Thomson Financial.
By contrast, first-year associates with MBA degrees at big, publicly traded investment banks can expect to make $70,000 to $80,000 in base salary plus bonuses of $60,000 to $80,000, according to Eric Moskowitz of the Options Group.
Industry experts say that years of record fund-raising have given large buyout funds the financial firepower to hire promising graduates just when Wall Street banks are cutting staff and many hedge funds have seen their performance flag.
“There is not enough all-star talent to go round and traditionally there is strong competition for it from private equity firms, hedge funds and banks,” said Brian Korb, a Glocap partner. “At the moment, however, banks have trouble fighting private equity groups.”
Unlike investment banks and hedge funds, whose compensation pool is determined by yearly results, buyout firms’ pay packages are dependent on the size and performance of funds whose life spans several years.
A senior associate with less than two years’ experience since business school will earn an average of $419,000 in 2007-08 at a buyout fund with more than $5bn under management – a 9 per cent rise over a year ago – according to the research.
But the real lure for young graduates is the multi-million dollar payout from “carried interest” – the percentage of a fund’s profit retained by private equity executives.
Senior associates can expect up to $5m over the lifetime of the fund but vice-presidents, executives with up to six years’ experience after business school stand to earn up to $14m while partners, the top management tier, can make an average of between $35m and $85m, according to the research.
Some experts warn that the worsening environment for mergers and acquisitions could make private equity less attractive to young graduates.
“Private equity funds have been on an historic run, producing results that no sector of the industry had ever seen,” said Dan Primack at Thomson. “It is going to be very interesting to see whether the current slowdown makes private equity a less hot destination.”