Asia still lagging on private equity bonuses

Globally more private equity firms are paying performance-related bonuses, but in Asia general partners are still said to be handing out smaller bonuses than their international peers. 

Almost half (46%) of PE firms globally paid higher performance-related bonuses in 2015 compared to only a quarter (26%) who did so the year before, according to a survey released by data provider Preqin last week.

Indeed, the 2016 Private Equity Compensation and Employment Review – which polled almost 200 private equity firms – found that bonuses rose more than base salaries. The median bonus was up 20% while the average base salary rose 7% last year.

Three quarters (76%) of PE firms said they planned to raise base salaries this year, around the same proportion as last year (74%).

Asian PE firms have largely closed the gap with their international peers when it comes to base salaries – and even pay above global market rates for some senior hires, said Michael Di Cicco, head of Asia-Pacific private equity and real estate at search firm Heidrick & Struggles. But this is less evident when it comes to bonuses, he noted.

Bonuses at PE firms in Asia Pacific stand at around 75% the level of those at global PE firms, said Singapore-based Di Cicco. Heads of these companies in the region may feel staff value fixed compensation more than bonuses or carried interest, he suggested.

In fact, PE firms in Asia often do not have a documented policy when it comes to carried interest (that is, profit share). Heidrick & Struggles has this year added to its own annual survey of compensation in PE “a few extra questions around whether respondents feel comp is transparent and fair and whether their firms have succession plans in place for Asia”, said Di Cicco. The search firm will release the results in a few weeks’ time.

Meanwhile, one area where Asian PE firms are leading the pack is in female staff representation, according to the Preqin survey. It found that women accounted for 40% of total staff at PE firms based in Asia Pacific, higher than at firms in Europe, the US and Latin America (35%, 33% and 15%, respectively).

Di Cicco observed that the relative youth of the PE industry in Asia meant there were more opportunities for women in the region, giving female staff a chance to prove themselves when it came to local knowledge and deal sourcing.

These findings comes as Asia has recorded the highest ever quarterly volume of PE-backed buyout deals between July and September this year ($20.8 billion). The figure was up from $4.2 billion in Q2 this year and from $13.6 billion in Q3 last year. It outdid volume in Europe for Q3 this year ($17.6 billion); the last time Asian PE buyout deal volumes surpassed those in Europe since the 2008 crisis was in Q2 2009. North America volumes were, as usual, way out in front with $44.3 billion in Q3.

In the third quarter, China was home to three of the world’s five largest venture capital deals, Korea contributed the world’s third biggest PE deal with MBK Partners’ acquisition of Homeplus, and Hong Kong-based RRJ Capital accounted for the fifth largest PE fund raised, the $4.5 billion RRJ Capital Master Fund III.