Dow Jones Private Equity Analyst-Holt Compensation Study

2008 Edition

Dow Jones Private Equity Analyst-Holt Compensation Study

Editorial Jennifer Rossa, R. Michael Holt, David Smagalla Research Sabelle Mang, Victoria Camporeale, Toivo Rehemets, Maryam Haque, Joanne Talamini, Jessica Di, Chloe Zhou, Skyey Zhu Advertising Joseph Koskuba, James Lindquist, Sasha Ziman Production and Design Tara M. Sapienza, Tim White, Ray Michael Peterson, Heather Ryan Editorial Director Kenneth M. Andersen III Tel 609.520.7779 or 800.291.1800 | www.fis.dowjones.com ISBN# 1-893648-99-0/978-1-893648-99-9 | Dow Jones Private Equity Analyst-Holt Compensation Study published August 2008 by Dow Jones & Company, Inc., located at Harborside Financial Center, 800 Plaza Two, 8th Floor, Jersey City, NJ 07311. Dow Jones & Co. is a News Corporation company. Cover Price: $2,195. Contact newsletters.support@dowjones.com. Copyright 2008 by Dow Jones & Company, Inc. All rights reserved. No part of this publication may be reproduced in any form or by any means graphic, electronic, or mechanical, including photocopying, recording, taping, and information storage and retrieval systems without the express written permission of Dow Jones & Company, Inc. Contents are based on information from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Dow Jones & Company, Inc., its officers, employees, or agents may hold positions in any of the securities mentioned herein.

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Editors note
Since last we published this report in the summer of 2007, the private equity world has been turned upside down. Debt has dried up, putting a big crimp in buyout firms deal-making. An economic downturn in the making has most acquirers fearful, substantially slowing the pace of exits from portfolio companies by both buyout and venture firms. The public markets are virtually shut to initial public offerings as of this writing in early August, no venture-backed company had gone public in almost five months. Layoffs on Wall Street are thought to be easing some of the competition for private equity talent that has driven compensation up so much within the industry in recent years. Given all that, youd think this years edition of the Private Equity Analyst-Holt Compensation Study would find the rapid increases in private equity compensation that have been a hallmark of recent years to be slowing, if not reversing themselves. But in fact, thats not the case at all, as compensation at most types of private equity firms showed even bigger gains than it did in our previous survey. Nor do firms show any signs of putting hiring plans on hold, with a majority of respondents to our survey saying they will continue adding staff in 2008. There are some signs that the downturn is beginning to hit private equity firms, but it isnt quantifiable. You have to look deep into the softer answers to our fill-in-the-blank questions. There, you find comments like this: Broad overall challenges in the financial services industry have impacted access to capital and opportunities for investment, wrote one respondent. Current compensation is stabilizing after 3-4 years of dramatic increases caused by alternative asset vehicles, wrote another. A surplus of experienced employees from investment banks now looking for jobs has mitigated upward pressure on comp demands, wrote a third. So what is one to make of all this? Our take is that while a number of factors all explored thoroughly within these pages buoyed private equity compensation through the end of 2007, one should not expect the same in 2008. Even if salaries and bonuses hold up through the downturn and were not so sure they will carried interest distributions likely will not. Future surveys will tell us whether we are right. Jennifer Rossa Managing Editor, Private Equity Analyst jennifer.rossa@dowjones.com R. Michael Holt Managing Director, Holt Private Equity Consultants rmholt@hotmail.com

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Executive summary
Introduction
The primary goal of the 2008 Private Equity Analyst-Holt Compensation Study the seventh in the series is to provide data on compensation that private equity professionals will find indispensable, whether by enabling individuals to see how their salaries measure up to those of their peers, helping firms to set compensation, or providing information on overall trends in the industry. To meet this goal, this year we have collected data from more executives than ever before, and dissected it into numerous categories. Included, as always, are the detailed annual compensation tables that are at the core of this report, organized by both firm type and by position. Also included is our staple analysis of firm-wide compensation practices, featuring expanded commentary on hiring trends and on how bonuses are paid, the result of a number of new questions we asked in our survey, this year. Weve also expanded our discussion of how private equity compensation has changed since we began this survey, delving more into the details of how compensation is affected by the type of firm an individual works for, the level at which that individual is employed, and changes in the macroeconomic environment. Finally, we include a chapter focused on compensation at limited partners, delving into the issues faced by this particular part of the private equity industry. This year, were looking especially closely at how competition for talent remains tight as limited partners continue to enter the asset class, even in the face of a worsening economic climate. The survey is divided into two main parts. In the first part, we asked questions about a firms organization, including questions about assets under management, how the firm creates a bonus pool, whether or not the firm has a carried interest program, what percentage of transaction fees it takes, and so on. For the most part, we present the information we gathered in this section across broad categories of firms not broken down by size as we assume that firm size doesnt play a major role in such issues. In the second part, we asked firms to tell us how much compensation (salary, bonus and carried interest distributions) they will distribute to each of their employees this year versus last year, as well as how many carry points employees are allocated. Participants identified their employees by job title and by location, but not by name, to ensure their anonymity. So that respondents consistently assigned employees the correct job title, we provided them with job descriptions for all 16 positions covered in the study (see Appendix B). We made some adjustments to these positions, where possible, to make sure that compensation levels roughly match across all firms that responded to the survey. In cases where there were one or no employees in a category, we listed the data as N/A (not applicable), again to protect participants anonymity. Not all respondents answered every question. The results of the employee compensation questions are presented in two main ways: by firm type and by job title. That is so a reader interested in a particular type of firm (e.g., small independent venture) can look up compensation information for different job titles (e.g., managing general partner, senior partner, etc.). But a reader who wants to look just at how managing general partners, for example, are compensated at different types of firms can flip to the page containing information on managing general partners. In all, 167 firms filled out questionnaires on their compensation practices (see Appendix A for a list of participants). Together, they provided detailed

Survey participants and methodology

The foundation for the 2008 Private Equity Analyst-Holt Compensation Study is a survey of U.S. fund managers by the editors of Private Equity Analyst. Filling out the survey represented a considerable time commitment, and we greatly appreciate those firms that took the time to do so.

Managing General Partner

2008 Salary ($000s) 2008 Salary Plus Bonus ($000s) 2008 Salary Plus Bonus Plus Carry Distribution ($000s)

Empl. Avg. Median 25th% 75th% Empl. Avg. Median 25th% 75th% Empl. Avg. Median 25th% 75th%
All N. Amer. PE Lg. Ind. LBO/VC/Mezz. 239 734.9 500.0 300.0 1000.0 450.0 1450.0 239 1474.7 1250.0 600.0 1750.0 239 3034.9 1600.0 735.0 3321.0

77 1087.7 1000.0

77 1883.8 1575.0 1167.5 2000.0

77 3985.7 2980.0 1400.0 5285.0

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Deal-Making Positions
Managing General Partner Sr. Partner/Sr. Managing Director Partner/Managing Director Principal/Vice President Senior Associate Associate Analyst Venture Partner/Operations Partner Head of Deal Sourcing

Administrative Positions
Chief Operating Officer Chief Financial Officer Controller Administrative Manager/Office Manager Chief Marketing Officer/Head of Marketing Chief Human Resources Officer Chief Legal Counsel

peer groups. In addition, because assets under management play such a big role in compensation, we further broke down groups by size, where sample sizes are large enough to do so. We have dissected independent venture capital, independent buyout, institutional and mezzanine in this manner. Our size divisions are as follows: small ($300 million or less in assets under management, defined as capital committed to all active funds), mid-size (more than $300 million to $1 billion) and large (more than $1 billion). We also felt it would be useful to look at the role location plays in determining compensation for U.S. firms. We felt that we had a large enough sample to compare how employees are compensated at independent venture firms based in Northern California versus those based in the Northeast and to compare how employees are compensated at independent LBO firms based in the Midwest versus those based in the Northeast. In these cases, as well as when we looked at European data, we considered where the employees themselves worked, rather than where their firms are based. Weve been running into a new problem in the last couple of years: how to accurately present European data, given recent currency swings. Weve chosen to present European data in dollars this year. Some employee information was submitted in dollars. For data submitted in other currencies, we used April 2008 average rates as recorded by the U.S. Federal Reserve to convert all numbers from both the most recent year and the year earlier. Doing so eliminates any distortions within the European numbers caused by swings in exchange rates over the last year, although those distortions are still present in any comparisons of European professionals with professionals in other geographic regions. The report includes several catchall categories that, because they are larger, have a lot to say about broad industry trends, such as how compensation changed over the last two years. The trade-off, of course, is that these larger categories are less useful in trying to establish where a firm fits in among its peers. The catchall North American private equity category includes North American independent and institutional venture capital, LBO and mezzanine firms. Because of their different compensation practices, fund-of-funds managers and corporate venturing groups are excluded

compensation data on some 2,100 employees. This year, as in the past, 16 job titles are covered by the study: nine deal-making positions and seven administrative positions. As in past years, our sample is diverse. Among North American participants, 44 (46 if you include those that only gave firm-wide data) independent venture firms filled out questionnaires, as did 43 (49 if you include those that only gave firm-wide data) independent buyout firms. Because firms affiliated with investment banks or insurance companies have compensated their employees differently than independent firms in the past, we continue to categorize them separately as institutional firms. Thirty institutional firms participated in the study, including those with venture capital, buyout and mezzanine practices. Eighteen (23 including firm-wide only) fund-of-funds managers participated (we lump North American and European respondents into the same category here). So did eight (nine including firmwide only) corporate venturing divisions, as well as 13 (16 including firm-wide only) mezzanine firms (including both independents and institutional firms). We have also beefed up our European response rate this year, with 10 European venture firms and five (six including firm-wide only) European buyout firms included. In some cases, we included firms in more than one category for instance, when the firms have both mezzanine and buyout practices and didnt indicate which professionals were affiliated with which practices. We provide extensive data on each of these groups to ensure that readers can compare themselves to their

All North American Private Equity (124 Firms)

2008 Salary Plus Bonus Plus Carry Distribution ($000s) Bonus, For Employees Receiving Bonus ($000s) Carry Distribution, For Employees Receiving Carry Distribution ($000s)

Empl. Avg. Median 25th% 75th% Empl. Avg. Median 25th% 75th% Empl. Avg. Median 25th% 75th%
Partner Principal/VP 245 282 886.7 456.3 680.0 370.5 442.5 1024.0 265.0 531.0 207 258 293.5 192.8 246.6 150.0 110.0 86.5 393.0 253.5 123 94 540.9 226.2 214.0 96.4 39.0 21.9 651.0 218.0

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from this category. European firms are excluded as well, so that we can capture any differences in compensation between North America and Europe. Below is a complete list of firm categories analyzed in our compensation study. Please note that sample sizes cited on this page may vary from the compensation tables or firm-wide tables because not all firms provided answers for all sections. All North American Private Equity (136 firms): Both independent and institutional venture, LBO and mezzanine firms operating in North America. Large Independent LBO/VC/Mezzanine (34 firms): Independent firms with more than $1 billion under management. Mid-Size Independent LBO/VC/Mezzanine (30 firms): Independent firms with more than $300 million to $1 billion of assets under management. Small Independent LBO/VC/Mezzanine (43 firms): Independent firms with $300 million or less under management. Independent Venture (46 firms): Independent venture firms based in North America. Large Independent Venture (13 firms): Independent venture firms with more than $1 billion under management. Mid-Size Independent Venture (15 firms): Independent venture firms with more than $300 million to $1 billion under management. Small Independent Venture (18 firms): Independent venture firms with $300 million or less under management. Independent LBO (49 firms): Independent LBO firms based in North America. Large Independent LBO (15 firms): Independent LBO firms with more than $1 billion under management. Mid-Size Independent LBO (12 firms): Independent LBO firms with more than $300 million to $1 billion under management.

Small Independent LBO (22 firms): Independent LBO firms with $300 million or less under management. Institutional Private Equity (30 firms): Private equity investment groups within commercial banks, investment banks and insurance companies. Large Institutional Private Equity (14 firms): Institutional firms with more than $1 billion under management Small- to Mid-Size Institutional Private Equity (16 firms): Institutional firms with up to $1 billion under management. Mezzanine (16 firms): Mezzanine firms. Large Mezzanine (9 firms): Mezzanine firms with more than $1 billion under management. Small- to Mid-Size Mezzanine (7 firms): Mezzanine firms with up to $1 billion under management. Corporate Venturing (9 firms): Corporate venturing divisions based in the U.S. N. Calif. Independent Venture (18 firms): This category includes employees who work in Northern California for independent venture firms, regardless of where those firms are based. NE Independent Venture (9 firms): This category includes employees who work in Boston, New York, and elsewhere across the Northeast for independent venture firms, regardless of where those firms are based. NE Independent LBO (14 firms): This category includes employees who work in Boston, New York, and elsewhere across the Northeast for LBO firms, regardless of where those firms are based. Midwest Independent LBO (17 firms): This category includes employees who work in the Midwest for LBO firms, regardless of where those firms are based. European Private Equity (16 firms): This category includes employees of Europe-based firms. European Venture (10 firms): Employees at European-based venture firms, plus employees of other firms based in Europe.

Chief Operating Officer

2008 Salary ($000s) 2008 Salary Plus Bonus ($000s) 2008 Salary Plus Bonus Plus Carry Distribution ($000s)

Empl. Avg. Median 25th% 75th% Empl. Avg. Median 25th% 75th% Empl. Avg. Median 25th% 75th%
All N. Amer. PE Lg. Ind. LBO/VC/Mezz. 15 9 417.3 483.2 385.0 500.0 210.0 367.5 541.0 559.5 15 9 653.6 661.8 523.0 698.0 500.0 500.0 780.0 766.5 15 1088.2 9 830.0 729.0 702.0 500.0 1340.0 500.0 1196.9

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European LBO (6 firms): Employees at European-based buyout firms. Early-Stage Venture (27 firms): Employees of venture firms specializing in early-stage investing. Late-Stage Venture (16 firms): Employees of venture firms specializing in late-stage investing. Multi-Stage Venture (7 firms): Employees of venture firms investing across the spectrum of venture opportunities. Funds of funds (23 firms): Fund-of-funds managers.

sample makes for another useful point of comparison. The first of the two columns shows bonuses only for those employees in the sample who received bonuses; the second shows carry distributions only for those employees who received carry distributions. The next two columns show how carried interest points are divvied up among employees at a firm. Typically, the number of points available to employees of a firm adds up to close to 20, as 20% is the standard profit-share for most firms with the exception of funds of funds and corporate venture firms. The first column shows carried interest assigned to employees in a particular sample. Only employees assigned carry points are included in these numbers. The next column, carried interest at work, represents carry points multiplied by assets under management at a firm. This is the portion of capital provided by limited partners that is invested on behalf of the fund manager. Those eligible for carry receive any realized gains from this capital; they do not receive the capital itself. This category is most useful in comparing potential carry compensation for employees at firms with large differences in assets under management. (Holt Private Equity Consultants has a technique for placing a value on the carried interest at work. See page 19.) The next two columns of compensation are 2008 salary, those participating in bonus program and 2008 salary, those not participating in bonus program. They are included because the salaries of employees eligible for bonuses may be markedly different (and often lower) than those of employees not eligible for bonuses. The final three columns show what percentage of employees in a particular sample participates in firms co-investment, bonus and carry distribution programs. These samples exclude employees whose firms dont have such programs. The samples are most useful in examining compensation trends for junior and administrative personnel, whose participation in these programs is open to negotiation. They also demonstrate that senior professionals continue to participate more in carried interest programs and less in bonus programs than junior executives. One final note: In many of our tables, we present data in the form of averages, medians, 25th percentiles and 75th percentiles. The average is the numerical average

How to read the tables

The main by firm tables start on page 47 of this report. The by employee type tables start on page 82. In all the tables, the employees column shows the number of employees in the sample. The first major compensation column, 2008 salary, shows the base salary for the sample as of April 1, 2008. The 2008 salary plus bonus column represents the sum of the 2008 salary and the 2007 bonus, often paid in 2008, for the entire sample. These numbers reflect the 2008 salary plus bonus for all employees that provided this information, including those employees who didnt get bonuses, even if they didnt get bonuses because their firms have no bonus program. The 2008 salary plus bonus plus carry distribution column represents the sum of the 2008 salary, the 2007 bonus and the 2007 carried interest distribution again, earned for performance in 2007 but paid in either 2007 or 2008. This is a sample-wide calculation that includes employees who dont get carry distributions, either because they arent eligible for carry or for other reasons. In cases where boxes on the questionnaire were left blank for carried interest distributions, we attempted to determine why. If we could not, we assumed that no carried interest was received. The next two columns are included because not all employees in the sample get bonuses or carry distributions; excluding employees who dont from the

Large Independent LBO (12 Firms)

2008 Salary ($000s) 2008 Salary Plus Bonus ($000s) 2008 Salary Plus Bonus Plus Carry Distribution ($000s)

Empl. Avg. Median 25th% 75th% Empl. Avg. Median 25th% 75th% Empl. Avg. Median 25th% 75th%
Principal/VP Office Manager 53 3 265.8 117.5 250.0 105.0 185.0 92.5 325.0 155.0 53 3 510.8 166.2 475.3 158.0 400.0 110.5 650.0 230.0 53 3 616.8 187.4 587.0 206.8 426.5 110.5 791.5 245.0

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of the sample. The median is that point at which half of the sample is bigger and half smaller. The 25th percentile is that point at which 25% of the sample is smaller, 75% bigger. The 75th percentile is that point at which 75% of the sample is smaller, 25% bigger. The 25th and 75th percentile rankings can be helpful to firms that fall at the extremes of the size categories we provide. For instance, the median for assets under management for large LBO firms in our study is about $1.5 billion. Employees of an LBO firm with $2 billion under management, however, could look at the 75th percentile ranking in the compensation charts to get a more accurate reflection of compensation at firms of similar size.

Co-investment plans for employees are also seeing a certain level of acceptance in some parts of the industry, namely at buyout and institutional firms. However, plenty of details in how firms compensate employees still lack standardization. For instance, we asked for the first time this year about what sorts of events bonuses are paid for deals, exits, or other events and found little agreement across the industry on this topic. We expect to see firms focus more closely on these issues in coming years as they make the transition to established, enduring institutions. More details on all of our findings in this area, as well as our predictions for the future, are contained in the report. Given the dramatic downshift in the private equity industry in the wake of the credit crunch, we also asked about firms hiring plans, and whether they are seeing a less competitive environment for talent. We found that, to a surprising extent, these pressures remain in place. Some 40% of firms experienced turnover last year, and a majority of firms expect to hire additional staff this year. However, there is anecdotal evidence from the responses to our survey that layoffs on Wall Street and elsewhere are beginning to decrease upwards pressure on salaries, at least. More than one respondent to our survey mentioned this as one of the biggest factors impacting compensation trends currently. Compensation by firm type: Despite the economic downturn in the second half of 2007, private equity professionals posted big increases in compensation last year in many cases, even bigger than the ones we saw in our previous survey. Across all positions, salaries for U.S.-based professionals at most types of firms excluding funds of funds and corporate venture rose 5.3% to $200,000. Salaries plus bonuses rose 25% to $375,000. Including carried interest distributions or the share of profits from deals that PE managers get to keep takehome pay jumped by 27.3% to $401,000, an even faster rate of growth than that seen in last years survey. We discuss the reasons for these continued healthy increases in great detail in the report. When we broke down compensation by type of firm, we came up with some interesting trends:

Our findings
Firm-wide compensation practices and trends: The biggest point to note in this section is that the private equity industry is indeed showing signs of institutionalization and standardization, but that it is a long way away from resolving all the issues that it faces in this regard. As we have discussed in past surveys, the amount of assets under management has a bigger impact than most other factors on private equity professionals salaries. Its no secret that private equity firms assets under management are increasing, and our survey bears this out. Assets under management for the median private equity firm in the new survey total $664 million, more than three times the $215 million amount in our initial survey back in 2002. As a direct consequence of this increase, a number of other things are changing. The number of portfolio companies under management is on the rise, as are management fees. So is the number of professionals at firms, although at a slower rate. All this means that many firms are now thinking more carefully about how they compensate employees. In the area of bonuses, our survey indicates that around 42% of firms tie bonuses to performance to some degree these days, up significantly from the early years of the study. In the area of carried interest, we see more types of firms adopting carried interest plans to remain competitive in the job market. At the same time, they are making sure they have some kind of hurdle rate in place before employees can begin to receive carried interest, in order to placate limited partners. They are also being very careful about vesting schedules for carried interest, given the wide-open job market.

Senior Partner/Senior Managing Direcctor

2008 Salary Plus Bonus Plus Carry Distribution ($000s) Bonus, For Employees Receiving Bonus ($000s) Carry Distribution, For Employees Receiving Carry Distribution ($000s)

Empl. Avg. Median 25th% 75th% Empl. Avg. Median 25th% 75th% Empl. Avg. Median 25th% 75th%
All N. Amer. PE Institutional PE 178 1869.5 1183.1 51 2457.4 1415.3 725.0 2087.5 922.5 2013.7 127 47 620.4 731.3 393.0 718.4 199.0 360.0 800.0 901.2 85 1669.3 602.0 161.0 1379.5 648.1 7228.5

20 3617.3 1580.5

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Buyout professionals compensation continues to outpace that of their venture counterparts, mostly due to large carried interest distributions. Cheap debt and a favorable environment for exiting portfolio companies, either via sales or initial public offerings, continued through the first half of 2007, turning the year as a whole into a profitable one for buyout

professionals despite the slowdown in the second half of the year. Venture professionals compensation improved last year from the doldrums it fell into after the technology bubble burst, with exits for start-ups reaching the highest levels since the bubble years. Firm size is playing a bigger and bigger role in determining how much compensation PE managers get. The larger firms pay more, and offer bigger raises, than the smaller firms. The data in our report offers strong support for the argument that employees have big personal incentives to raise the largest possible fund they can, as often as they can.

Table 5a

How are individual bonus awards determined?

For those firms with bonuses Firm Type No. of Discretion of Firms Management 57.7% 65.0% 56.3% 53.8% 52.0% 42.1% 12.5% 35.7% 22.2% 60.0% Based on Performance 8.9% 7.5% 2.1% 15.4% 20.0% 26.3% 50.0% 28.6% 33.3% 20.0% Both 33.4% 27.5% 28.0% 30.8% 41.7% 31.6% 37.5% 35.7% 44.4% 20.0%

All N. Amer. PE* 123 N. Amer. Ind. VC 40 N. Amer. Ind. LBO 48 N. Amer. Mezzanine 13 Institutional PE 25 Funds of Funds 19 Corporate Venturing 8 European PE 14 European VC 9 European LBO 5

Mezzanine professionals have benefited from the credit crunch, which has removed other sources of debt from the equation and brought many PE firms to their doors. That can already be seen in the results of our latest survey, with mezzanine professionals compensation showing dramatic signs of improvement. We delve into these trends in detail in the report, as well as highlighting interesting data from other areas of the PE industry, including institutional firms, European buyout and venture firms and corporate venture firms. Compensation by employee level: Senior professionals in the private equity industry tend to be compensated quite differently than junior professionals. Thats because senior professionals have traditionally received most of the carried interest distributions, while junior professionals have had to rely more on bonuses to help fill out their compensation. For this reason, its always interesting to look at how compensation breaks down among the two categories of employees.

*Excludes funds of funds and corporate venturing

Table 5b

What role does individual performance versus team performance play in determining bonuses?
For those firms where performance is a factor Firm Type All N. Amer. PE* N. Amer. Ind. VC N. Amer. Ind. LBO N. Amer. Mezzanine Institutional PE Funds of Funds Corporate Venturing European PE European VC European LBO Firm-Wide 69.2% 50.0% 66.7% 83.3% 91.7% 81.8% 71.4% 66.7% 57.1% 100.0% Team/Unit 34.6% 28.6% 28.6% 33.3% 50.0% 63.6% 57.1% 0.0% 0.0% 0.0% Individual 76.9% 92.9% 66.7% 66.7% 83.3% 45.5% 85.7% 100.0% 100.0% 100.0%

We include managing general partners, senior partners and partners in the senior professional category. Across these three positions, salaries plus bonuses rose 13.7% to $757,100. Compensation including carried interest rose 22.8% to a median of $1.03 million. For junior-level professionals, we include principal/VPs, senior associates, associates and analysts. We acknowledge that there is some debate about whether or not principal/VPs should be classified as junior- or senior-level positions.

*Excludes funds of funds and corporate venturing

Mezzanine (13 Firms)

2008 Salary Plus Bonus Plus Carry Distribution ($000s) Bonus, For Employees Receiving Bonus ($000s) Carry Distribution, For Employees Receiving Carry Distribution ($000s)

Empl. Avg. Median 25th% 75th% Empl. Avg. Median 25th% 75th% Empl. Avg. Median 25th% 75th%
Mng. Gen. Partner CFO 18 1960.7 2153.0 1067.0 2710.0 4 335.5 332.0 259.8 414.8 16 1285.5 1313.0 4 88.8 75.0 837.0 1745.4 56.3 135.0 9 3 784.7 17.3 475.0 14.0 301.0 1304.2 13.0 25.0

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Compensation is still on the rise

All N. Amer. PE (124 Firms) Position Managing General Partner Senior Partner Partner/Managing Director Principal/VP Senior Associate Associate Analyst Chief Operating Officer Chief Financial Officer Controller Office Manager Venture/Operations Partner Senior Titles Junior Titles Admin. Titles All Salary (Median) ($000.0) 2007 % Change 468.5 400.0 280.0 157.5 121.8 90.0 75.0 350.0 230.0 100.0 63.0 237.0 360.0 120.0 132.0 190.0 6.7% 23.3% 8.0% 11.1% 15.0% 11.1% 6.7% 10.0% 6.5% 10.0% 6.3% 5.5% 11.1% 13.3% 13.6% 5.3% Salary+Bonus (Median) ($000.0) 2007 % Change 1000.0 750.0 500.0 300.0 185.3 135.1 95.0 494.0 335.0 130.0 75.0 255.0 666.1 186.0 164.0 300.0 25.0% 15.3% 17.3% 21.7% 33.0% 40.6% 31.6% 5.9% 14.9% 15.4% 8.0% 39.8% 13.7% 34.4% 25.0% 25.0% Salary+Bonus+Carry (Median) ($000.0) 2008 2007 % Change 1600.0 1227.5 697.5 385.1 252.1 190.9 125.0 729.0 417.0 158.0 81.0 383.0 1026.5 253.0 210.0 401.0 1400.0 1045.5 610.0 310.0 186.4 135.1 95.0 646.0 360.0 140.0 75.0 255.0 836.0 187.6 183.6 315.0 14.3% 17.4% 14.3% 24.2% 35.2% 41.2% 31.6% 12.8% 15.8% 12.9% 8.0% 50.2% 22.8% 34.9% 14.4% 27.3%

Empl. 238 166 236 242 142 118 101 15 63 57 59 30 640 603 221 1501

2008 500.0 493.2 302.5 175.0 140.0 100.0 80.0 385.0 245.0 110.0 67.0 250.0 400.0 136.0 150.0 200.0

2008 1250.0 865.0 586.5 365.0 246.5 190.0 125.0 523.0 385.0 150.0 81.0 356.5 757.1 250.0 205.0 375.0

Across these four positions, salaries plus bonuses rose more steeply than those of senior professionals, by 34.4% to a median of $250,000. Total compensation, including carried interest, rose 34.9% to $253,000. Administrative professionals compensation is also rising, which we attribute to the increasing demands being made of such employees as firms institutionalize. As firms raise more money, they tend to have more limited partners and more portfolio companies to keep track of. That creates a bigger burden for employees like chief financial officers and chief operating officers. We analyze these trends in more detail in our report. We also look at how the compensation of senior, junior and administrative personnel breaks down by firm size and by firm type. Compensation at limited partners and funds of funds: Limited partners and funds of funds face a different set of challenges than do general partners in the private equity industry, whether because of their fiduciary obligations or their different compensation structures. We include a separate chapter on these challenges again this year. We find that limited partners typically pay their employees far less than do general partners, a situation

that leads to some turnover. This year, we take an especially close look at where limited partners are turning to recruit talent in the face of this turnover.

Conclusion
So far, private equity professionals compensation appears to be holding up quite well in the face of shifting economic winds. Whether it will continue to do so is a matter of some debate. Well be here to track the changes next year, and look forward to continuing to give private equity professionals the tools to understand the trends shaping compensation and to see where they themselves and their firms fit in.

Analyst
2008 Salary ($000s) 2008 Salary Plus Bonus ($000s) 2008 Salary Plus Bonus Plus Carry Distribution ($000s)

Empl. Avg. Median 25th% 75th% Empl. Avg. Median 25th% 75th% Empl. Avg. Median 25th% 75th%
Independent LBO Large Independent LBO 60 36 88.4 95.4 85.0 90.0 80.0 85.0 95.0 110.0 60 36 134.4 151.7 138.0 150.0 85.0 93.2 183.8 185.0 60 36 135.1 152.7 138.0 156.5 85.0 95.3 185.0 189.5

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Appendix A

Respondents to our survey

24/7 Real Media AM Pappas & Associates ABS Capital ABS Ventures Accel-KKR Accuitive Medical Ventures Advent-Morro Equity Partners Adveq Management AG AIG SunAmerica Ventures Alchemy Partners LLP Alloy Ventures Alumni Capital Network Amadeus Capital Partners Amanda Capital PLC American Capital Ltd. American Infrastructure Funds LLC* Ampersand Ventures Aravis AG Arcano Capital Ascension Health Ventures Athenian Venture Partners Atlas Venture Banc of America Capital Access Funds Banc of America Capital Investors Banexi Ventures Battery Ventures Belvedere Capital LLC Blue Point Capital Partners Blue Wolf Capital Management BNY Mezzanine Partners LP Brantley Partners Brazos Private Equity Partners LLC Bruckmann Rosser Sherrill & Co. Management LP Caltius Capital Management Caltius Mezzanine Capital-C Ventures CapitalWorks CapMan Group Capstreet Group Carlyle Group - Mezzanine CBR Management GmbH CEA Capital Advisors Change Partners, Sociedade Capital de Risco SA ClearLight Partners LLC Clearview Capital Comcast Interactive Capital LP DCM Desjardins Venture Capital Deutsche Beteiligungs AG Dominion Ventures DSM Venturing Edgewater Funds Egan Managed Capital Endeavour Vision Enterprise Partners Venture Capital Eureka Growth Capital Management LP Fidelity Ventures Focus Ventures Founders Equity Frazier Management LLC Frontenac Co. G-51 Capital Management GIC Special Investments Goense Bounds & Partners Golub Capital Granite Hall Partners Granite Ventures Great Hill Partners Greenbriar Equity Grotech Ventures Gryphon Investors Hilco Consumer Capital LLC HRJ Capital IDEA Fund Partners Insight Equity Internet Capital Group Intersouth Partners Inverness Graham Investments Investor Growth Capital JAFCO America Ventures Inc. JK&B Capital JMI Equity Kenmont Investments Management LP Key Principal Partners Kodiak Venture Partners KRG Capital Partners Leeds Equity Partners LLC Legacy Venture Lehman Brothers - Fund of Funds Lehman Brothers - Leveraged Buyout Lehman Brothers - Mezzanine Lehman Brothers - Venture Capital Linsalata Capital Partners Logispring Longworth Venture Partners Lovell Minnick Partners LLC Madrona Venture Group Marlin Equity Partners Massachusetts Technology Development Corp. MCM Capital Partners LP Meakem Becker Venture Capital Montagu Newhall Associates National City Equity Partners New Enterprise Associates New Europe Venture Partners New Leaf Venture Partners Northern Trust Global Advisors Northstar Capital LLC Norwest Equity Partners Norwest Mezzanine Partners Norwest Venture Partners Panasonic Venture Group Panorama Capital Partnership Capital Growth Advisors Paul Capital Investments Peninsula Capital Partners Penta Investments* Peterson Partners Petra Capital PNC Equity and PNC Mezzanine Pond Venture Partners Portfolio Advisors Prism Capital Prolog Ventures LLC Prudential Financial QuestMark Partners RBC Venture Partners RCP Advisors LLC Red Diamond Capital Riverlake Partners Riverside Co. (Capital Appreciation and Micro-Cap Fund) RiverVest Venture Partners Sage Capital Salem Halifax Capital Partners Salix Ventures SAP Ventures Seaport Capital LLC Sevin Rosen Funds SightLine Partners Spur Capital Partners LLC SSM Partners Steamboat Ventures Sterling Capital Partners Sterling Venture Partners Striker Partners Sun Capital Partners SV Life Science Advisors SVB Financial Group Synergo SGR TA Associates Tailwind Capital Target Partners The Investment Fund for Foundations Thoma Cressey Bravo Inc. TL Ventures Twin Bridge Capital Partners UPS Investments Utah Fund of Funds Valhalla Partners VantagePoint Venture Partners Veronis Suhler Stevenson Visa Inc. Voyager Capital LLC Wachovia Capital Partners Weathergage Capital WHI Capital Partners Wind Point Partners Wolf Ventures ZenShin Capital *Not included in report

152 | Dow Jones Private Equity Analyst-Holt Compensation Study

Appendix B

Job descriptions
Deal-making positions
Managing General Partner: The head of the firm, providing both strategic and operational leadership to the organization, with responsibility for its overall success, planning and growth. Senior Partner/Senior Managing Director(s): Seasoned dealmakers who oversee investment and exiting decisions for large parts of the portfolio, and who head up execution of organizational goals and strategy set by the managing general partner. They usually have at least 15 years of relevant experience. Partner/Managing Director(s): Experienced dealmakers, either with financial or operational expertise, who lead teams that source transactions, negotiate them and monitor companies once in the portfolio. They typically sit on company boards and determine exit strategies. They usually have at least 10 years of relevant experience. Principal/Vice President(s): Supervised by more senior staff, these professionals participate on teams that source transactions, negotiate them and monitor companies once in the portfolio. They rarely sit on company boards. They usually have an MBA or equivalent business experience, and at least five years relevant experience. Senior Associate(s): These junior professionals, moderately supervised, crunch numbers and perform research at an advanced level to support deal sourcing, due diligence of investment opportunities and the monitoring of portfolio companies. They usually have an MBA or equivalent business experience with at least two years relevant experience. Associate(s): These junior professionals, heavily supervised, crunch numbers and perform research at an intermediate level to support deal sourcing, due diligence of investment opportunities and the monitoring of portfolio companies. They usually have an MBA or equivalent business experience and less than two years relevant experience. Analyst(s): These junior professionals, heavily supervised, crunch numbers and perform research at a basic level to support deal sourcing, due diligence of investment opportunities and the monitoring of portfolio companies. They usually have a college degree or equivalent business experience.

Administrative positions
Chief Operating Officer: Generally this position exists at only the largest private equity firms; the COO is responsible for all of the non-deal-making aspects of the organization, from business strategy to internal accounting to human resources. Chief Financial Officer: This senior professional heads up accounting and cash management for the firm and its limited partnerships, and at smaller firms, may have responsibility for the operational side of the firm, including human resources. At larger firms, the CFO may report to the COO. Controller: This professional performs accounting, financial monitoring, reporting and similar services. May report to the CFO or COO. Administrative Manager/Office Manager: At larger firms, this professional supervises support staff and oversees routine administrative functions of the firm. May report to the CFO or COO. Chief Marketing Officer/Head of Marketing: At larger firms, this professional is responsible for fund-raising and investor relations. Chief Human Resources Officer: At larger firms, this professional is responsible for such HR functions as recruiting, performance management, compensation, benefits, organization issues, etc. May also recruit executives for portfolio companies. Chief Legal Counsel: At larger firms, this professional is responsible for coordinating legal work by outside counsel, as well as for providing legal advice on matters of fund formation and deal-making.

Other deal-making positions

Venture Partner/Operations Partner: This professional identifies investment opportunities and advises portfolio companies on operational matters. This partner may occasionally fill in a key management role on a temporary basis. Head of Deal Sourcing: This position is responsible for identifying new investment opportunities.