If you’re a senior private equity professional used to generous salaries and bonuses and, more importantly, the prospect of a huge long-term pay day through carried interest, would you quit the buyside to work for the regulator? Financial regulators in the US, UK and Asia are increasingly hiring in private equity expertise as they give the sector more scrutiny and – according to new research – seem willing to stretch their strict salary bands.
Research by Kinetic Partners as part of its annual Global Enforcement Review released this week suggests that ‘annual expenditures’ at the Securities and Exchange Commission have increased by 62% over the last six years, by 50% at the UK’s Financial Conduct Authority (formerly the Financial Services Authority) and by 120% at the Securities and Futures Commission of Hong Kong.
“Staff numbers at these regulators, however, generally rose by a lower percentage leading us to surmise that they are recruiting a higher calibre of professional and that these industry specialists are being paid commensurately more,” the firm wrote in its report.
The FCA has already named two former senior investment bankers to its wholesale enforcement division this year. In February, former Goldman Sachs MD James Kelly joined the FCA as an adviser and in April the regulator hired former Lehman Brothers managing director Gunner Burkhart.
More recently, however, regulators have focused on bringing in private equity expertise. In a May speech, Andrew Bowden, director, office of compliance and inspections at the SEC, said that it had been adding “individuals with private equity expertise” and that it was “forming a special unit of examiners, who will focus on examinations of advisers to private funds”.
“The SEC has demonstrated that it is committed to ensuring that the skills it has in-house match those in the industry,” says Kinetic Partners. “But the question that many are asking is how did the SEC manage to persuade so many relatively highly paid private sector professionals to join its ranks?”
While Kinetic suggests that expenses are on the up at the regulator, both the SEC and FCA maintain strict salary bands for their staff. Senior officer pay at the SEC is capped $243.4k. The FCA, meanwhile, doesn’t make its pay publicly available, but salary bands for regulatory managers at the FSA were up to £200k ($315k). Neither of these salaries are particularly prudent, but compared to the $1.34m average compensation for senior private equity professionals in the US and $857.2k in Europe, it still seems like small change.
Moreover, the FCA’s employee handbook doesn’t suggest generosity elsewhere. A “no-frills ‘Budget’ carrier” will be offered to staff flying abroad for work if it’s available – a far cry from the business class most private equity professionals are used to – and it has a maximum £10 for sustenance when travelling employees don’t stay overnight. For staff parties, a maximum of £60 per head has been allocated this year.
Kinetic Partners suggest the benefits of working for the regulator lie elsewhere, including a “more structured career path, long-term job security and an opportunity to be involved in policy making”.
However, former regulatory employees who switched back into banking have been in the headlines for all the wrong reasons recently – ex-NY Fed employee, Rohit Bansal, who joined Goldman Sachs, was fired after allegedly forwarding confidential information about their former employer to a senior colleague.
However, other examples suggest a stint with the regulator can be beneficial for your career. Hector Sants, who spent ten years at the FSA latterly as its head, joined Barclays as head of compliance on a package allegedly worth £3m. He quit after less than a year, however, citing stress and pressures of the job.