It is shaping up to be another lucrative year for professionals employed by North American buyout and growth equity firms—a development consistent with a gradual recovery in the fundraising market over the last few years.
Nearly a quarter (24 percent) of North American buyout and growth equity firms said partners will see their bonus payouts for 2013 performance rise, according to the latest annual compensation study published by Holt Private Equity Consultants and Thomson Reuters (publisher of BuyoutsMagazine). That is up from the 18 percent of firms who actually did pay partners a higher bonus for their 2012 performance than for their 2011 performance.
Nearly three quarters (71 percent) of firms said partners will see their 2013 bonuses hold steady, while just 6 percent said partners will see the size of their 2013 bonuses fall, according to the study. Partners who are in line for a higher bonus may not be overjoyed with the actual boost: The median anticipated increase is a modest 3 percent.
Bonuses tend to get paid either before the end of the financial year (36 percent of buyout/growth equity respondents) or, more commonly, within two months of the end of the financial year (41 percent). In general they get paid out of management fees and other fees earned by the general partner, and therefore tend to rise and fall with overall fundraising activity.
Altogether some 39 North American buyout and growth equity firms filled out surveys on their employee compensation practices this spring and summer. The resulting study, 2013-2014 Holt-Thomson Reuters PE/VC Compensation Report, North American edition, is slated to be published this month. The median assets under management, defined as committed capital to all active funds, came in at $679 million for participating buyout and growth equity shops; the bottom-quartile border is $273 million, while the top-quartile border is $1.9 billion.
Investment professionals below the partner level also have much to look forward to. More than four in 10 (44 percent) responding firms said that non-partner investment professionals will be rewarded with higher bonuses this year, according to the study; the median anticipated rise is 8 percent. In actuality, according to the study, more than half (53 percent) of firms paid out higher bonuses to non-partner investment professionals for 2012 performance than for 2011 performance. Another 44 percent of firms said they anticipated no change in bonus levels paid for the 2013 performance of non-partner investment professionals.
Buyout and growth equity firms are not forgetting their administrative and support staff, although the bonus outlook is not quite as bright for them as for investment professionals this year. According to the study, just over one in five firms (21 percent) plan to pay higher bonuses to partner-level administrators for 2013 performance than for 2012 performance; the median expected increase is 9 percent. All the rest plan no change in bonus amount for partner-level administrators. At the same time, just under a third (29 percent) of respondents said they planned to pay higher bonuses to non-partner administrative staff for 2013 performance than for 2012 performance, with a median expected increase of 5 percent. Nearly all the rest (65 percent) said they planned to hold such bonuses steady.
Among other findings of the study:
* Nearly one in five (18 percent) North American buyout/growth equity firms report that bonuses are entirely discretionary, while the rest are either partially discretionary or based on a formula tied to firm performance, team performance or individual performance.
* For those reporting that the bonus is partially or fully discretionary, managing partners make the determination just over half the time (51 percent) for North American buyout/growth equity firms in our sample; for just under a quarter of firms (23 percent) all the partners make the determination in concert.