The biggest private-equity firms in the U.S. reported sharp increases in employee pay last year, as Wall Street managers sought to recruit and retain top talent in the most competitive labor market in years.
On February 11, Apollo Global Management Inc. reported that its 2021 expenses for compensation and benefits were $3.49 billion, more than triple the previous year, calculated using generally accepted accounting principles, or GAAP.
Other publicly traded private-equity managers recorded similar increases. Blackstone Inc.’s costs more than tripled, while KKR & Co.’s and Carlyle Group Inc.’s more than doubled from 2020. The reported numbers include the portion of the profit that firm deal makers get from successful investments, called carried interest.
Private-equity firms say that the GAAP increases misrepresent actual compensation, since they include the estimated value of future carried-interest payments. Firms also point out that compensation is tied to fund performance, and say last year’s results reflect a banner year that also benefited their investors.
While compensation costs reported by Blackstone, Apollo, KKR and Carlyle could overstate the take-home pay of firm workers and might not be emblematic of the rest of the industry, there is little question that private-equity pay is soaring, driven by the industry’s growth and intense competition for the most sought-after professionals.
“It’s a talent war out there,” said Sasha Jensen, the founder and chief executive of Jensen Partners, an executive-search company that works for alternative-investment managers such as private-equity firms.
Ms. Jensen estimates that compensation, including cash bonuses, rose about 40% industrywide last year for the private-fund marketing and fundraising professionals she specializes in recruiting.
Average private-equity compensation varies widely by seniority, role and by the size of the firm. In 2020, average compensation, including base salary and bonus, ranged from $262,000 for associates to $3.3 million for managing partners at firms with $10 billion to $20 billion in assets, according to a survey by executive-search firm Heidrick & Struggles International Inc.
Pay rose in 2021 as private-equity firms found themselves swimming in a record amount of cash from asset sales. U.S. firms recorded $854.3 billion in exits last year, a record and more than double the second-highest annual sum of the past decade, according to PitchBook Data Inc.
With so much cash to throw around, firms are expanding their product lines and adding workers at a fast pace. Private equity hasn’t seen the large-scale employee departures that have added to the tight labor market and driven pay rates higher in other sectors of the economy, said Jonathan Goldstein, who heads the American private-equity practice for Heidrick & Struggles.
“We’re not seeing people leaving the industry,” said Mr. Goldstein, who specializes in recruiting investment and operations professionals. “The ‘Great Resignation’ is not applicable to private equity.”
Mr. Goldstein said the number of current job openings and searches is higher than he has seen in more than two decades as a recruiter for private-equity firms, and that demand is extremely high for employees, from newcomers to veterans.
“Frankly, at all levels we have seen a marked increase in activity as well as comp inflation,” Mr. Goldstein said. “It’s definitely a candidate’s market right now.”
Ms. Jensen said that starting around the middle of last year, she was “stunned” by the “extraordinary shift” in pay practices that emerged in the industry. To lure top candidates, firms have started offering perks that include buying out a candidate’s accrued carried interest from their current job, or even doubling it, and offering multiyear guaranteed cash payments—a practice unheard of previously, she said.
On earnings calls with investors, executives of publicly traded private-equity firms offered little insight into how the labor market is affecting their operations. But they did offer some details about where they are looking to add staff.
KKR said last November it aimed to triple the head count of its private-wealth group, from roughly 40, and firm executives said recently they were making progress.
“Suffice to say, this part is a real strategic priority for us,” Craig Larson, KKR’s head of investor relations, said last week. “We feel really well positioned and we’re very active as it relates to hiring talent on a global basis.”
Blackstone President and Chief Operating Officer Jon Gray said on Jan. 27 that the firm had recently expanded its analyst class along with adding high-level employees from outside the company.
“We’ve hired a number of senior leaders to lead new initiatives or to move into existing businesses, something in the past we hadn’t done as much of, but given our rate of growth, we need to do that,” Mr. Gray said.
While private-equity firms jockey to add talent, there is no shortage of workers eager to enter the industry. Mr. Gray said last year Blackstone had 29,000 applications for 120 analyst positions.
“That’s an incredible number, and I’m happy when I applied way back when that wasn’t the number,” he said.