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2014Private EquityEMEA CompensationSurveyExecutive Report

2014 EMEA Compensation SurveyIntroductionIn June 2014 Heidrick & Struggles invited over 7000 executives working in the European Private Equity industry to participate in an onlinesurvey of compensation. This annual survey follows the successful 2013 edition.We received 574 useable responses (a slight increase on 2013) from professionals working across the PE value chain: executives who raise andretain capital, executives who invest this capital and those who work to improve returns, as well as the CFOs, General Counsels, and CHROs oftheir funds. This represented a response rate of 8% and we would like to take this opportunity to thank all those who completed the survey.The largest respondent group was Investment Professionals (77% of total participants) and this report focuses primarily on their compensationlevels and trends. As well as analysing investment professionals as a group we have differentiated between strategies; Buyout, Secondaries,Fund of Fund, Co-investment, VC and Credit (with an emphasis on illiquid and distressed).We gathered further data on fundraising professional and operating professional compensation and have reported on it where we hadachieved significant response rates. For other functional specialisations we did not gather sufficient information.Should you wish to discuss the survey in greater detail please do not hesitate to contact us.Richard ThackrayPartnerrthackray@heidrick.comTom ThackerayEngagement Managertthackeray@heidrick.comKanika WaliaSenior Research Analystkwalia@heidrick.comOn ConfidentialityThe survey has been conducted on an anonymous basis for the individuals and their employers and Heidrick & Struggles has kept separatethe data relating to name and firm from their compensation.2

2014 EMEA Compensation SurveyTable of ContentsIntroduction2Market Backdrop4General Observations on Compensation Trends5Respondents Cash Compensation Development2012-20146Mean Base, Bonus & Carry by Fund Size 2014Investment Professionals only7Mean Base, Bonus & CarryFundraising and Investor Relations Professionals only8Mean Base, Bonus & CarryOperating Professionals only8Years of PE Experience & Compensation in 2014 vs 2013Investment Professionals only9Years of PE Experience & Carry 2014Investment Professionals only10Comparison of Compensation across Europe and Africa2014 for Investment Professionals only11Investment Strategy Mean Base, Bonus and Carry 2014Investment Professionals only12Respondents PE Experience DemographicsInvestment Professionals only13Split of Respondents by Educational QualificationAll Professionals133

2014 EMEA Compensation SurveyMarket Backdrop Further crystallisation of funds who are the ‘winners’ and ‘losers’. Late 2013 and H1 2014 has seen the first ‘green shoots’ since the crisis with a few first time funds raising significant capital. The employment market remains subdued. However, there are a small number of senior roles being recruited in Europe. Demand fromprofessionals still greatly exceeds the supply of roles. In a market with high asset pricing and readily available debt, firms are struggling to identify investment opportunities to pursue withconviction.Responses have varied but a few trends emerge The large cap sector is investing again in advisor and executive networks to create advantage in sourcing and auction processes. In the middle market and below there is a focus on “hunters” who are able to source effectively. Certain sectors seek professionals with deep industry expertise:–– Technology–– Mining, Energy & Natural Resources Proven “Deal Captains” remain the most typically “traded” seat in most firms in European Private Equity.Accordingly we were interested to understand compensation with the industry in detail and to answer questions such as: How has pay developed recently? How has pay developed year on year (2013 vs 2014)? What is the relationship between fund size and compensation? In there a variation between strategies? Is there a difference between European Markets in compensation? Is there a variation across the value chain of executive roles in compensation?4

2014 EMEA Compensation SurveyGeneral Observations on Compensation TrendsBase Salary 2014 vs. 2013Breakdown of Respondents Reportingan increase in 2014 Base SalariesBonus 2014 vs. 201347.4%37.6%No Change9833%Decrease62%Increase19665%No 1 - 10%increase11 - 20%increase21 - 50%increase51 100%increaseMorethan100%increaseA higher proportion (65%) of respondents reported pay increases in our 2014 survey versus 36% in 2013. Scale of reported increase wassimilar, as was changes to bonuses.65% of respondents received base salary increases between 2013 and 2014. 38% also saw an increase in bonus levels reflecting continuedincreasing rewards for top performers at good firms.Time series data is analysed later in the report (page 9)5

2014 EMEA Compensation SurveyRespondents Cash Compensation Development2012-2014 ’000)CAGRCAGRTotal Comp Total mpManaging Director Level: Managing Directors,Managing Partners, Senior Partners, al Level: Principals, Vice Presidents and ate Level: Associates and Analysts8257139906515582581400.3%15.6%All Professionals ’000)CAGRCAGRTotal Comp Total mpManaging Director Level2682815492872725592983296276.9%3.3%Principal Level1451553001591503091591473061.0%7.8%Associate Level8358141906615682621440.6%14.8%All ProfessionalsSelf reported compensation development for Principals and Associates has grown at less than the rate of inflation and is markedly differentthan our 2013 summary; suggesting strong cost management within GPs: The reported CAGR for the Associate cadre total compensation was14.8% in 2013 versus 0.6% in 2014. Given the strong response rate in the survey for this group this is a notable trend.Managing Director’s compensation has increased above inflation and was double the reported increase in 2013.6

Align the text centre and resize and align with shapesall 0mm distributedBUBBLES: align 0mm to top of bar. Label 0mm above. Do not resizebubbles2014 EMEA Compensation SurveyMean Base, Bonus & Carry by Fund Size 2014Carry - at work: The expectedreturn on total carry participationacross all vehicles. Based onachieving a net 2x return (abovehurdle and after fees) in a vehiclecharging a 20% performance fee.Investment Professionals onlyMean Carry 2014 ( Millions)Mean Bonus 2014 ( Thousands)Mean Base 2014 ( Thousands)Fund sizes in MillionsProportionally make the stacked chart 218.9 mm19.7mm (to fill width)Align to bottom/or 1mm from axis text11.6Managing Director Level7.53.747311.317.8recolour8.0Align the text centre and resize and align with shapesall 0mm distributed 67328325616.8Update x axis14.8228BUBBLES: align 0mm to top of bar. Label 0mm above. Do not resize408bubbles220282 250m251-500420278356Align to bottom/or 1mm from axis306text294751-10001001-2000Principal LevelAssociate 500501-75010.05.5251149567001-1400234171 250m5001-70005.4BUBBLES: align 0mm to top of bar. Label 0mm above. Do not resizebubbles1770.669980.727423313Update x axis501-750Align the text centre and resize and align with shapesall 0mm distributed 250m338Proportionally make the stacked chart 218.9 mm mm (to fill width)981.551119377175This analysis was the most popular data set from our 2013 survey as it helped individuals ‘benchmark’ their compensation, allowing theinquisitive industry participant to answer the question “where do I stand versus my peers?”Whilst we have observed some variations in the data as segmented by fund size, the overall picture is consistent with our 2013 report.7

2014 EMEA Compensation SurveyMean Base, Bonus & CarryCarry - at work: The expected return ontotal carry participation across all vehicles.Based on achieving a net 2x return (abovehurdle and after fees) in a vehicle charginga 20% performance fee.Fundraising and Investor Relations Professionals onlyMean Carry 2014 ( Millions)Mean Bonus 2014 ( Thousands)Mean Base 2014 ( Thousands)1.1148149Managing Director Level0.32988Principal LevelAssociate Level8.8399275Compensation for fundraisers and investor relations professionals continues to reflect a trend observable from last year’s survey; Seniorpractitioners are paid on a similar cash basis to their peers but lag behind on carry (by approximately 50%). This data incorporates 66respondents.Mean Base, Bonus & CarryOperating Professionals only691.9138164Managing Director Level21Principal LevelAssociate Level7.3351263New for 2014’s survey is compensation data for Operating Professionals drawn from 43 respondents. It is notable that junior operators arecompensated at lower levels than their investment professional peers for base, bonus and carry.Senior Operating Professionals receive a comparable salary, but lower bonus and carry share, whilst principals are compensated at similarlevels to their investment professional peers across all forms of compensation.8

2014 EMEA Compensation SurveyYears of PE Experience & Compensation in 2014 vs 2013Investment Professionals only( ’000)BaseBonusMeanTotal Cash (Base Bonus 44427156962.8%17 248337585625-6.4%Years of PE ExperienceTotal Cash (Base Bonus 2013)% change in totalcash since 2013When talking with aspiring entrants to the industry we often counsel that Private Equity is an “Endurance Team Sport”.Wealth is created through securing a seat at a good firm, delivering good performance and progressing within the firm. There is notablyhigher growth in compensation for senior practitioners; which we feel reflects the general industry economic model.9

2014 EMEA Compensation SurveyYears of PE Experience & Carry 2014Carry - at work: The expectedreturn on total carry participationacross all vehicles. Based onachieving a net 2x return (abovehurdle and after fees) in a vehiclecharging a 20% performance fee.Investment Professionals onlyMeanMedian25th Percentile75th 40.850.351.981.411.000.334.003.902.653-4 yrs5-6 yrs7.756.896.005.298.205.835.003.002.000.800-2 yrs5.054.219.701.181.307-8 yrs9-10 yrs2.382.3811-12 yrs13-14 yrs2.0815-16 yrs17 yrsThe graph above illustrates the relationship between carry development and experience and the percentile ranges.Crucially we do not match compensation data to the source fund’s performance so cannot comment whether there is a strong relationshipbetween fund performance and compensation.10

7696Benelux Nordics: Denmark, Norway, Sweden and Northern Europe.96Central & EasternEurope81 Central & Eastern Europe (CEE): Belarus, Hungary, Poland, Romania,Russia and Turkey.67 Benelux: Belgium, Netherlands and Luxembourg.71Germany7362 Africa: Nigeria, Republic of Tunisia, Kenya, Egypt and South Africa7863t81United KingdomResponses from countries are grouped as:57Nordics1001002014 for Investment Professionals only10084Comparison of Compensationacross Europe and Africa872014 EMEA Compensation Survey99Europe continues to show significant variability for cash compensationdependent on geography.8965SwitzerlandIn the Nordics, Benelux, Germany and Spain, junior investmentprofessionals are rewarded comparatively better to London markethighs than their senior compatriots.6178London remains the most highly compensated market.74France6851In France and Africa compensation levels remained linked to seniority.63SpainAfricaTotal Comp with ref to that of UKMean Bonus 2014MDPrincipalHeidrick & StrugglesAssociateMean Base 201411