Having done this work for almost 20 years now, I do enjoy being able to watch the market for Operating Partners evolve as the macro cycles begin and end.  Nothing is permanent in this game. 

The period between 2005 and 2008 were heady days for the function. We had the tailwinds of a great market, the proliferation of club deals, and the bulge bracket firms aggressively building out their operating expertise (TPG, KKR Capstone, Cerberus, Blackstone and Bain Capital).  Then we fell off a cliff after Lehman went under… deals were scarce, teams were pared back and no one felt safe spending management fees.  

We then had a slow build back that took a number of years, but the silver lining was that operational expertise became essential across all levels of the asset class. This was ultimately the seminal moment for the Operating Partner as an institutionalized role in PE regardless of a firm’s AUM. 

Things settled in and we all experienced a phenomenal 7 to 8 year run. Even Covid couldn’t derail us. I did my first post about Ops Partner compensation in June 2018 and then followed it up in January 2023. Amazingly, not much had changed. We were still living high on the hog. 

Well, I hate to be the bearer of bad news, but things have changed and the outlook for 2024 isn’t quite so rosy.  We are coming off an awful year for exits and fundraising. Throughout the PE community, compensation in 2023 took a hit. The same applies to our community of Operating Partners. If you are considering making a change in 2024, I would keep a couple of things in mind.

First, cash compensation packages are down from the high water marks of 12 months ago. Based on the extensive conversations that I’ve had, I would estimate that firms are paying 10 to 20% less for a new hire at the various levels of expertise than they would have done at this time last year.  This reality will feel like a cold shower to folks “in the market” so it leads to my advice for January 2024:

If you have a good seat, keep it… at least for now.

My gut tells me that, for the most part, firms are hesitant to spend money to now build out a group.  Of course there will be exceptions, but I think this opinion is mostly correct.  Further, my eyes tell me that even for those firms that are making additions they’re seeking to add to the more junior levels of their teams and letting those folks grow over time.  I just don’t see the demand for MD level talent in the same way that it’s been for the most recent cycle.  

So, if you’re an experienced and higher paid teammate I would advise you to take a look at things that are clearly an improvement from your current situation, but don’t voluntarily give up your current seat.  Absent a great concrete opportunity, keep your head down for the time being and continue to produce great results.  Like everything in the finance world, this cycle will expire and things will improve for all.  Until then though, be smart about the realities of today’s market.