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Carry takes a hit

by Krystal Scanlon 4 May 2020

Carried interest in the private equity industry is expected to decrease as a result of Coronavirus, according to recruitment firm PER.

The firm’s latest report, Taking the Temperature, found that 74% of respondents predict carried interest and LTIP values will drop during the next three months. However, respondents expect both to normalist in the medium to longer term.

Covid-19 impacts

The double impacts of valuations and longer investment periods will take their toll on IRR, which in turn affects carry.

Valuations are harder to calculate given increased uncertainty, and are expected to decrease, according to Gail McManus, managing director and founder of PER.

Additionally, deploying capital is more challenging under current conditions. Some funds may have to ask for extensions to their investment period, which will impact IRRs.

Carry / LTIP

During the next six-12 months the majority of respondents (59%) expect carry to be unaffected.

McManus told The Drawdown, “Carried interest is in the future, some people think they have time to make up for the effects of the pandemic, but I think many people instinctively feel they aren’t going to make as much return on their portfolio as they had hoped.”


The majority (60%) of UK respondents think carry will stay the same, while 39% think it will decrease, and a mere 1% believe it will increase.


More DACH participants (64%) think carry will not change as a result of the coronavirus outbreak, while a third (33%) think it will decrease. Similar to the UK, 2% remain hopeful it will increase.

Rest of Europe

More than half (57%) of those surveyed from the rest of Europe think carried interest will remain unchanged, while 38% think it will decrease. These participants seem most hopeful, with 5% believing it will increase.

The minority of respondents across the UK, DACH and the rest of Europe who think their carry will increase (1%, 2% and 5% respectively), are managers who see opportunities in the current climate, but it all comes down to timing, added McManus.


Bonuses usually relate to a year of activity and are often paid three months after the year end depending on the PE firm’s financial year, explained McManus.

Firms that paid bonuses in March 2020 for example, are most likely to be more optimistic they can achieve a reasonable bonus for March 2021. However, firms with a calendar year ending in March, and expecting to pay bonuses in June potentially face a dilemma.

“These firms have a difficult decision to make,” explained McManus. “They’ll be thinking whether or not they should be holding some of this bonus back to slightly smooth bonus years because they’ll have moved from a great year, to an unpredictable year. So the question is how can you keep staff motivated with the bonus, but maybe hold some back to keep their options open in the future.”


The majority (70%) of UK respondents expect their annual bonus to decrease, while 28% expect it to remain the same, and only 2% expect it will increase.


DACH participants were the most split, with 56% believing bonuses will decrease, 42% thinking it will remain the same while the remaining 2% are hopeful it will increase.

Rest of Europe

Half (52%) of the respondents from the rest of Europe believe their bonus will decrease while the remaining 48% think it will stay the same.

Base salary

PER’s survey also indicated what private equiteers expect to happen to their base salaries over the next six-12 months. Across the board, the majority of those surveyed expect to see no change in their base salaries, while less than one-fifth expect it to decrease.


Of those surveyed, 85% believe their base salary will remain the same, while 14% expect a decrease and the remaining 1% feel there will be an increase.


PER found that 79% of DACH respondents feel their base salary will remain unchanged while the remaining 21% will see a decrease.

Rest of Europe

Almost all (95%) of respondents expect their base salary to remain as it is, while the remaining 5% are hopeful that it will increase, according to the recruitment firm.

PER’s survey received 600 responses and was completed in early April, soon after the UK went into lockdown.

The firm will update its findings this month as the UK reveals its roadmap plans to exit lockdown.

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