PE Industry - Firing in downturns
Do pe firms fire people during downturns? My intuition would tell me they don’t since a fund lasts 7 - 10 years. Curious what people are seeing in today’s environment and if anyone has insight into what happened during 2008 / 2009. Thanks.
I think bonuses may reflect the changes in 2-3 years into a recession when exits are lower and things are still managing portcos and looking for good buys. PE shops are already super small which is why I like to think we may not get fired as analysts/associates, but may not get promoted or will get a delayed promotion. I don’t think there can be huge changes for that reason (there are very few people at firms and basic fees can cover salaries if not bonuses). definitely not sure because I wasn’t around last recession but I’m curious what others think. can see some cuts, but even 20% can mean only 1 person off per team and if bonuses don’t need to be paid then whatever fees are in place should be able to sustain operations for a few years on basic salaries no? or do PE funds in practice operate much differently? how will institutional investors stand up + GP entities that own a stake or are big influences. will they step up with their own pockets?
What is the impact on bonuses in pe?
You're probably going to get less.
Bonuses shouldn't go down much unless fundraising itself is impacted and a fund is significantly smaller. Bonuses do not come from exits/carry it's all mgmt fee. So cutting staff salary in a downturn or even after, absent fundraising declines, just means the GP (equity stake partners) keep more profit LOL (note: that likely wouldn't happen). It's a beautiful business model for that reason
Obviously will depend firm to firm, but a lot of GPs are still keeping a portion of their management fees and transaction fees. When those fees dry up in a downturn (more portfolio companies can’t afford to pay mgmt fees and fewer completed deals) it can definitely have an impact on staffing levels and bonus payouts. Not saying PE doesn’t have a super resilient business model, just pointing out the nuance.
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