Fund houses are upping financial incentives for private markets staff to stay amid a war for talent with some of the world’s largest alternative houses.
Asset managers are trying to reduce the risk of talent in the red-hot sector being scouted by larger rivals, and are fighting back with pay and bonus hikes, as well as long-term deals to lock in top performers.
“We have seen compensation go up for people covering private markets capabilities,” said Max Heppleston, a managing director at executive search firm Fredriks. “If you are to compete with Blackstone, KKR or someone who can just offer a lot more money, it does mean your staff are at a higher risk of being poached. These funds have much deeper pockets.”
Traditional fund houses have been ramping up their private market capabilities, as investor demand for fast-growing assets including private credit, private debt, infrastructure and real estate surges.
BlackRock acquired Global Infrastructure Partners for $12.5bn in January, while Amundi announced on 7 February it had bought Zurich-based private markets specialist Alpha Associates in a deal worth up to €300m.
While some have acquired private market specialists and teams to grow their expertise, others such as Fidelity International and Royal London Asset Management have opted to build teams from scratch.
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RLAM’s chief investment officer, Piers Hillier, told Financial News last year that despite looking at between 40 and 50 private markets businesses to acquire, growing its own was the best route.
However, as asset managers expand into private markets, recruiters say they face a growing threat of top talent being poached by some of the world’s premier alternatives players.
Traditional asset management firms tend to pay between 20% and 50% less than large private equity and alternatives firms in the UK private markets sector, according to some recruiters.
“As a result private equity houses are able to cherry-pick the best talent from traditional firms,” said Tara Bagley, a partner in the global banking and asset management division of Page Executive. “As private market investments are becoming more attractive to investors, this trend is expected to become more pronounced over the next 12 months.”
Bagley said some traditional asset managers have increased base salaries, raised the bonus potential for staff and provided better long-term incentives to retain talent.
But they face stiff competition from alternatives firms, where total pay increases can be significant.
“Someone who might get $300,000 to $400,000 [at a traditional asset manager] could potentially double that within the right firm,” said Heppleston.
He cited one example where a fund professional moved to a private markets role and secured a $900,000 pay package, up from the $375,000 they were being paid at their previous employer.
“The compensation they are paying is enough to pull anyone out of a more traditional firm,” said Heppleston.
FN recently reported that private credit professionals are among the highest earners in Europe, with some senior executives pulling in an average of €13.7m last year, according to numbers from executive search firm Heidrick & Struggles. This includes salary, bonus and carried interest.
The figures for managing partners and partners working in the sector showed compensation was made up of a €389,200 salary and a €710,000 bonus, with the vast majority of pay coming from carried interest payments.
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With such large remuneration packages on offer, asset managers have become more concerned about how they can compete and retain talent.
“There is often a perception that strong performing teams building good track records in this space are highly vulnerable to poaching from firms with deep pockets,” said Tim Wright, a senior client partner at Korn Ferry. “Although another viable risk is the possibility that those individuals and teams with a strong brand in the market could raise financing to set up on their own.”
Wright said some asset managers have implemented incentive programmes “to address potential flight risks”.
But despite these higher incentives, asset managers are unlikely to be able to compete with larger alternatives firms.
“It’s still not comparable to top private equity houses, who can pay significantly more on a total compensation basis, and are more likely to offer carry,” said Bagley. “Unfortunately, it’s a bit of two-tiered system.”
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