How much activity, relative to historic levels, is there in the private debt recruitment market today?
At Walker Hamill we have covered debt recruitment for just over 17 years as an addition to our long-standing private equity business. Whilst we cover debt across both the buy and sell-side, over the last four years the majority of our mandates have been with debt funds, with the most significant and sustained increase in recruitment amongst direct lending funds. The buoyant fundraising market over the last two years has brought positive growth from larger established funds as well as an increasing number of team-builds for new funds.
Which skills and types of professionals are in demand, and why?
Language requirements will often be a key requirement, with German, Italian and Scandinavian languages being the most consistently in-demand. Across all areas of private debt, leveraged finance associates are particularly sought after, with strong credit analysis skills being key to a smooth transition from sell side to buy side.
Unfortunately, at the associate level, these talent pools are shrinking. This is a result of the changing environment in banks, as well as job seekers moving at an earlier stage than seen previously (i.e. during their analyst years). This is also partly attributable to the ever-growing number of funds (in private debt but also private equity and fintech) selecting from the same talent pool.
As a result, there are significantly fewer top-ranked associates in the market and funds that are recruiting at that level will need to have streamlined processes and review compensation, in order to secure the best candidates.
How lucrative are compensation packages relative to historic averages?
Whereas investment banking salaries have recently undergone fairly significant changes, with early promotions and shortened analyst programmes, buy side compensation has not changed as drastically. In fact, cash compensation across our debt clients has only marginally increased in the last 12 months. There was a significant jump in banking salaries three years ago, especially for first-year associates, and consequently we saw the buy side mirroring this increase for associate salaries.
Are you seeing any interesting developments in the way compensation packages are being structured?
Carry – when it is paid, and who is eligible – is probably where we have seen the most interesting developments in compensation packages over the last few years. We have seen that most of our newly launched debt fund clients offer carry from day one, to all levels. This is contrary to our larger, more established, asset management clients, who have only really offered this at principal level. Having said this, there are a handful of larger players who offer carry from the outset, but this is quite unusual.
What has been even more interesting is the way in which carry has been structured; some employ a deal by deal carry system and others prefer fund carry. For the former, we have seen this paid “live”, as debt is deployed, and then again when it vests, or alternatively in one lump sum as the deal vests.
Carry has always been a meaningful component of senior professionals’ compensation packages, but has been a marginal consideration for junior and mid-level professionals. That has changed over the last few years and as a result more analysts, associates and VPs are seeking carry participation upon joining.
What are the one or two key trends that you would expect to impact private debt recruitment over the next year or two?
Fundraising is currently very strong across alternative investment classes, and competition among funds is likely to be a key trend over the next couple of years. We have seen significant growth among established funds and new market entrants, across a variety of investment strategies, all of whom are drawing on a similar candidate pool.
We are also carefully watching promotion cycles and remuneration in the bulge bracket banks. Given several are implementing fast track promotion schemes and in some cases two-year analyst programmes there may be an effect on the entry point to the buy side. To date funds have not overtly changed their minimum experience requirements although may be forced to in order to avoid significant discrepancies in cash compensation.
Across the industry as a whole we expect diversity to continue to be a hot topic, with an increased number of funds carefully considering their recruitment process and strategy. With a view to developing the knowledge base and thinking more creatively about the hiring process, Walker Hamill has focused on mapping diversity across the industry in an effort to assist our clients’ strategic needs.