PE Bonuses Are ‘Back in a Big Way’

Some PE pros will have a little something extra under the tree this year, according to a survey of private equity professionals.

“Bonuses are back, and they are back in a big way, said David Kochanek, publisher of the “2011 Private Equity Compensation Report,” a comprehensive survey of private equity firms that included Kayne Anderson Capital Advisors, Hilco Consumer Capital and American Capital, among others.

Overall, bonuses are anticipated to rise by more than 10 percent, with managing directors expecting a substantially larger pay package for their efforts after the recession’s close.

Perhaps rosy outlooks have been buoyed by portfolio performance. The PE compensation report said more than 40% of LBO pros watched this year as funds gained between 10 percent and 25 percent.

Bigger paychecks mean expectations are growing as well. The percentage of respondents that said they were happy with their compensation fell slightly year-over-year, a sign that the PE job market is finally beginning to gain some momentum. Just under half (45 percent) of respondents said they believe they will get double-digit percentage pay increases compared to 2009—which means that if PE firms fail to satisfy top performers, those performers may take their talents elsewhere.

Not all of the job market news is good, however. Job seekers still face a tough market, with 68 percent of survey respondents saying they won’t be hiring.

These numbers fall in line with a compensation survey conducted earlier this year by Thomson Reuters (publisher of peHUB). That survey found that a majority of buyout shops had no plans to hire.

The Thomson Reuters survey also indicated that junior applicants would fare well. Of the respondents who said they would be hiring (just 24% of the total), nearly 90 percent said junior-level hires would be sought.

Separately, Kochanek’s report found that the industry standard of a 20 percent carried interest rate is increasingly coming under fire. More than one third of funds interviewed take less than one-fifth carry, the survey found.

“There was clearly downward pressure on the amount of carry,” Kochanek said, adding, “If a fund continues to perform above market, it’s pretty tough for investors to say, ‘Fees are too high.’”

Go here for Kochanek’s report.