In December, I spent time with multiple clients who were in the process of thinking through their 2023 budgets.  Each of them runs a Portfolio Operations team inside a PE firm.  The firms for whom they work are quite different… ranging in AUM from $4 billion to $350 billion, and many in between.  They were all thinking about the market dynamics of 2023, the cost of new deals, the maintenance of existing deals and the resources they’d need to support both.  The over-riding theme that was shared by all: We just don’t know how things are going to play out.  

They each wanted some insight into the current market rates for compensation for the various members on their teams.  Some were coming up in the promotion cycle and others were for new hires that they envisioned.  In each case, in this context, my highest and best use is to offer a contemporary point of view on what it would cost for one of them to come to Lancor seeking to headhunt new talent into an opening.  The statistical historical compensation reports that are available to them are generally useful, but TBH it’s more valuable to understand the real current cost of what it takes to add someone strong to the group.

Of course, there will be an opening to argue that my perspectives don’t squarely match a firm of a specific fund size (and therefore the ranges aren’t true analogs), but there’s not much I can do about that.  Basically, we lump firms into three categories: lower middle market, middle market and bulge bracket.  But if we assess it further, in the areas in which many of these firms invest (TMT, healthcare, consumer, industrial…), the firms that one competes with for those deals will be investing out of both much larger and much smaller fund sizes.  So, all those PE firms are ultimately in competition for the same set of resources/executives/operating partners to improve those target portfolio companies.  My point here is that PE shops of all sizes are chasing similar types of executives.  Thus, when I think about the general compensation ranges, I take all of that into account.  It’s just the market reality.

Case in point: I have one going on right now where the candidate is deciding between joining a firm with less that $1 billion AUM versus Blackstone.  There couldn’t be a much wider spread… 

In this market, you should expect to pay the following to laterally poach someone with the credentials/experience to match the mandate of:

• Firm Leader: “Overall responsibility for portfolio operations”
  • Annual Cash: likely somewhere around $1.5m
  • Annual Carry value: likely somewhere around $2.5m
  • * Keep in mind that established people in this role are generally not economically available
• Operating Partner: “Direct responsibility for Portfolio Operations of generally “x” Portcos”
  • Annual Cash: likely somewhere around $1m
  • Annual Carry value: likely somewhere around $1.5m
• Principal: “Similar to Operating Partner but more junior”
  • Annual Cash: likely somewhere between $700k and $800k
  • Annual Carry value: likely somewhere around $800k
• Vice President: “Varies by Firm”
  • Annual Cash: likely to be a wide range, but somewhere between $450k and $650k
  • Annual Carry value: similar to the structure for a Principal, it’s a 1:1 ratio on annual cash compensation

Unfortunately due to the wide variance in the market, I can’t give opinions on Carry value per fund because it ranges so widely across the firms that make up the landscape.  All I can do is advise a client to take those annual numbers and extrapolate them for what you would envision to be a reasonable timeframe for the employee to see his/her returns.

If you’d like some more granularity, or some anonymized anecdote from 2022, please don’t hesitate to reach out.  Looking forward to great 2023 despite its current uncertainty!