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26 May 2024

Bonuses set to decline in 2012

By Shuchita Kapur

Bonuses for private equity managers are forecast to drop in 2012, which will slash the amount of money they will take home in a year. Investor sentiment still remains shaky and the industry will see slow deal flows and even slower exits in the region, impacting the pay checks of PE managers.

According to recruitment experts in the industry, PE mangers should not expect an increase in their remuneration. On the contrary, bonuses (which form a big part of their annual salaries) will continue to remain under pressure.

“From what we have seen in the market, in 2012, [salaries of] PE managers will range from a basic package of $180,000 to $500,000/year with bonus being based typically on size of assets under management. It is safe to say that the play is in the performance based compensation or bonus, as opposed to the fixed aspect of the compensation,” Hajira Gartaoui, PE specialist at Huxley Associates told Emirates 24|7.

Shane Phillips, MENA Regional Practice Leader, Financial & Professional Services at Stanton Chase believes that “bonuses in 2012 will be sparse for the majority of PE players.”

Commenting on the average salary of a partner or managing director in the industry, Gartaoui stated: “In our industry the management fee is on average 2.5 per cent of assets under management.

So, for $100 million under management, the company makes $2.5 million, ([if] assets under management [are] $250-500million, the company makes around $6-12 million. On $1 billion [the amount] is $25 million.

There is no exact formula because it all depends on the kind of investments and how easy it is to manage the assets.

This is coupled with the individual nature and discretion of each company,” he said.

Bonuses often make a bigger chunk of the overall salary but in the current market scenario this equation has changed. “Bonuses earned can often far outweigh fixed basic salary figures.

That said, given the lack of appetite, reduced market sentiment and geo-political circumstances, bonuses have seen a downward trend for some time and in many instances, not paid out at all,” said the Huxley expert.

According to Phillips of Stanton Chase, “fund managers are a different kettle of fish. If someone is handling a $250 million PE fund for a bank they are usually a fund of funds and thus it is only called a private equity fund because they are investing in another private equity fund, which is then investing in infrastructure funds or IT Start Ups or whatever that fund is set up to do.

Thus, the PE fund manager will get paid a bonus in line with what the bank has an appetite for and that depends on the bank, its position and its market position.

Several top fund managers that I know have already seen their bonuses cut and now they are looking to move.

So, the upside is for banks and PE Firms who want to catch top talent at a reasonable price. Many clients are seeing this as the best time to get top shelf executives on-board.”