Guy Hands, the angelic progenitor of Terra Firma Capital, is in the Financial Times today with some frightening thoughts about the future for private equity (PE) jobs and pay.
For anyone who’s missed it, here are Hands’ horrid homilies to his private equity colleagues:
· General partners’ income will fall 75% as a result of the crisis.
· There will be fewer people working in the industry in future.
Hands isn’t the only private equity name to predict an uncertain ride for his industry. John Moulton, of Alchemy Partners, has been warning of significantly lower returns for at least 12 months.
There are already signs that private equity funds aren’t doing quite as well as they were: KKR, which made a profit in the first half of 2007, turned in a $1.1bn loss in the first half of this year, following huge writedowns on its investments. And UK buyouts plunged to 10.9bn this year, down from 24.5bn in the first half of 2007, according to the Centre for Management Buy-out Research.
But PE insiders say there’s no need to panic: “This is classic Hands scaremongering. His comments are flawed – funds have already been raised, so management fees are locked in and there’s NO WAY pay will fall 75%.”
According to London-based data provider Preqin, PE funds are sitting on $400bn of uninvested capital, for which they’re paid management fees of anything from 1.5% to 2%. Rumblings about changing the fee structure have so far come to nothing.
Katherine Howe, a director of recruitment firm KHG Partners, which places analysts and associates from investment banks into PE funds, says there’s been no appreciable reduction in their appetite for hires depuis le crunch: “We haven’t seen any impact at all.”