Covid chomps on comp

Antoine Dréan, founder and chairman of Triago, predicts that a consequence of the collapse in asset values will be the wipeout of profit sharing for many managers.

Those with heavy exposure to the hospitality, travel and energy sectors are particularly likely to see permanent impairment, writes Antoine Dréan, founder and chairman of Triago, in Ten Predictions for How Covid-19 Will Transform Private Equity.

He adds that even at firms where hopes of getting back into carry are reasonable, it may take years of hard work to return to such levels. This could result in junior staff jumping ship and founding their own firms.

A survey in May by recruitment firm PER of 300 PE professionals revealed that more than 60 percent expected carry to decrease in value. Of these, 85 percent also expected payments to be delayed.

Although 83 percent of respondents expected no change in base salaries, 52 percent expected bonuses to decrease, and 10 percent of those estimated a reduction of more than 50 percent.

Nigel Mills, a director at executive search firm MM&K, notes from conversations with industry participants that an important stated reason for the scaling back of bonuses is the recognition by firms that they are going to need to recruit more staff – particularly at the associate and analyst levels – to help deal with the additional workload the pandemic is going to bring.

He sees this additional workload as being driven by two factors: first, GPs need to monitor more closely and provide extra support to their existing portfolio companies; second, GPs need to research, identify, carry out due diligence on and execute new deal opportunities that are expected to come up later in the year at potentially attractive prices.