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Private Equity Salaries, Bonuses Are Getting Bigger

Private equity firms are increasing compensation beyond carried interest, according to new research.

A majority of private equity professionals are getting bigger salaries this year and received 2018 bonuses at least as large as targets set for them, according to research from J. Thelander Consulting. 

Investment professionals with the title director or principal had an average base salary of $194,166 last year and total cash compensation of $275,985, Thelander found in a study with private market data provider PitchBook. The 2018 findings are based on responses from 166 firms that invest in private equity strategies including venture capital.

Most of the firms that participated in the study are based in the U.S. and target the middle market, with assets under management of less than $1 billion, according to Jody Thelander, head of the namesake consulting firm. Bonuses for performance last year were projected to be an average $120,563, an increase from 2017, according to responses from 109 asset managers. 

The total compensation comes on top of carried interest, the typically 20 percent cut of profits that private equity managers pocket when they exit deals, Thelander said in a phone interview. This performance incentive is not paid out on a regular schedule, she said, as private equity funds may hold a company for several years after backing it.

Private equity firms raise funds to buy stake in companies, aiming to sell them later at a higher price. The remaining 80 percent of profits from their deal making is distributed to the investors in their funds. 

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According to Thelander, individual directors and principals who work in private equity received an average 3.6 percent of their firms’ carried interest in 2018. She said that women tend to receive a smaller percentage of carried interest than their male colleagues.

The San Francisco-based consulting firm’s study of investment firms is broader than the number of firms that chose to respond to questions about compensation and included queries about gender.

The private equity industry is dominated by men, and white males lead most of the companies held by investment firms.

About 81 percent of surveyed professionals with the title director or principal are male, according to replies from 162 firms. Forty-six percent of private equity and venture capital firms said that less than five percent of their active portfolio companies were led by chief executive officers who are women or minorities. 

Twenty-two percent of the total 218 firms that replied to this question put that figure slightly higher, saying between 5 percent and 14.9 percent of CEOs at their portfolio companies were either women or underrepresented minorities. Only two percent of firms said about half of their CEOs were female or minorities.

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