Terra Firma forecasts shrinking funds, falling pay

Private equity executives will be paid far less, fund sizes will shrink and some firms will go out of business, the chairman and chief investment officer of British private equity house Terra Firma said on Wednesday.

“Life on the whole will get a lot tougher and a lot less financially rewarding for GPs,” Guy Hands said at the Super Return private equity conference in Miami. He was referring to general partners, the executives who run private equity firms.

“Sitting back, using financial leverage and flipping companies to another GP or strategic buyer will no longer be an option,” he said, adding that executives are going to have to work much harder for their money.

“GPs will become nicer, more humble members of the human race,” he added.

Hands estimated that GPs will be paid about 75% less and fund sizes will shrink by about about 50%.

“I estimate that many private equity firms will simply go out of business,” he said.

Private equity firms have struggled to keep investments above water and investors happy while facing the problem that there are few opportunities to exit companies they own through initial public offerings or sales.

Hands, previously chairman and chief executive officer of Terra Firma, relinquished day-to-day control of the firm in March to concentrate on investments and building relations with investors. Tim Pryce stepped up to the post of chief executive.

Reporting by Megan Davies; editing by John Wallace