Asia PE compensation set for downward adjustment in 2023
Compensation for private equity professionals at most levels of seniority in Asia Pacific continued its upward trend in 2022 despite a weaker economic outlook and a slowdown in deal flow, but executive search firm Heidrick & Struggles expects some kind of adjustment this year.
“Our expectation is that hiring will certainly slow down. It will become a buyer’s market in 2023, so you can assume the pay-outs will be relatively less, although when it comes to bonuses, which depend on fund performance, the devil is in the detail,” said Shadi El Farr, Heidrick’s regional managing partner for the financial services practice in Asia Pacific and the Middle East.
Even though AVCJ Research found that investment slowed from USD 375.3bn in 2021 to USD 227.4bn last year, average base salaries rose at every level apart from partner or managing director. Partners and managing partners took home smaller bonuses in 2022, but associates, vice presidents, and principals saw increases, according to Heidrick’s latest private capital compensation survey.
Compound annual growth in total cash compensation between 2020 and 2022 for associates, vice presidents, and principals ranges from 13.1% to 15.4%. Partners and managing partners have seen growth of approximately 5%.
Of the 128 survey respondents, more than half said their base salary had increased in 2022 on the previous year compared to two in five in 2021. Four in five expect their salaries to rise by up to one-fifth over the next 18 months. However, 39% reported receiving a larger bonus in 2022 than in 2021, down from 57% the previous year; 18% said their bonus decreased versus 6% in 2021.
The survey found significant gaps in market sentiment across different geographies and investment strategies. Nearly half of Greater China-based respondents said they felt worse about the industry’s prospects than 12 months ago, which tallies with the headwinds in that geography. In contrast, 89% of professionals in Japan and 70% in Australia said conditions were improved or about the same.
The expected impetus for credit and special situations strategies in a downturn was confirmed as four in five respondents from that segment said they felt better about the market outlook. Two in five infrastructure and real estate professionals are also positive. Significant numbers of buyout (43%), growth capital (38%) and fund-of-funds (61%) representatives said sentiment had worsened.
El Farr said the most active strategies from a recruitment perspective are credit and special situations, infrastructure, and ESG [environment, social, and governance]. The latter refers to ESG-driven investment in areas like sustainability, social infrastructure, and affordable healthcare.
El Farr added that the private equity industry in Asia has yet to experience job cuts on the scale of investment banking. Moreover, Hong Kong remains comfortably the most lucrative location in the region amidst departures in the broader financial services industry amid concerns about pandemic-related travel restrictions and growing mainland influence.
Average total cash compensation in Hong Kong declined last year across all levels of seniority, while in Singapore it went up. But Hong Kong-based investment professionals are still much better paid: partners received 90% more than their Singapore counterparts; vice presidents received 17% more.
According to El Farr, Hong Kong sits atop the pile because it remains a key location for most global and pan-regional managers and last year much of the hiring was in-market – travel restrictions limited access to international talent, so the pool of available candidates was smaller. The removal of restrictions in Hong Kong and the mainland is expected to facilitate increased recruitment activity.
“Incentive schemes are in place to attract talent to Hong Kong, and these will play a positive role in reinstating Hong Kong as a key financial hub. We are already starting to see that,” El Farr said.
He added that the displacement of people from Hong Kong to other markets, notably Singapore, isn’t the same as the displacement of jobs. There is still a need for senior professionals in the territory to cover the China market, although “we have seen some flow to Beijing and Shanghai in recent years, including from some of the global funds. They want to be close to decision-makers.”
Investor relations professionals were not covered by the survey, but this remains a hot segment in terms of recruitment. El Farr said the level of activity “has been phenomenal, last year and in 2021,” with clients especially interested in candidates with distribution expertise involving private credit and Japan.
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