Top private credit professionals are now the highest earning executives on the buyside in Europe, as a surge of new entrants into the sector from investment banks and private equity firms have increased demand for expertise.
Senior private credit executives in Europe pulled in an average of €13.7m last year, according to numbers from executive search firm Heidrick & Struggles, including salary, bonus and carried interest.
The figures for managing partners and partners working in the sector showed compensation was made up of a €389,200 salary and a €710,000 bonus, with the vast majority of pay coming from carried interest payments.
They have the highest salary and bonus among senior executives in private capital, with only the vast amount of carried interest earned by top executives in big buyout firms knocking them into second position overall.
In 2022, private credit executives earned €9.4m on average, according to the headhunter’s numbers. The surge in pay in 2023 shows how demand for private credit expertise has skyrocketed as traditional investors and large banks have piled into a sector that has ballooned to $1.8tn globally.
Buyside firms such as Blackstone, Ares Management and Apollo Global Management have raised billions from investors to focus on private credit strategies. These include activities such as direct lending, mezzanine finance and distressed debt investing.
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In recent years, this has taken vital deals away from the banking sector, which often acts as middleman for the sale of debt products and leveraged loans. However, investment banks have responded by launching private credit funds of their own.
In late 2023, banks including BNP Paribas, Citigroup, Goldman Sachs, JPMorgan, Morgan Stanley, and Nomura all ventured into private credit, either through their banking or asset management units.
The boom has drawn regulatory scrutiny, both in the US and now from UK watchdogs because of the opaque nature of the market. In a 29 January letter, the Bank of England’s director of financial stability, strategy and risk Lee Foulger said there are “significant challenges with obtaining reliable data to monitor the risks in private credit”.
However, the increased attention from regulators has yet to dampen new product launches, while compensation has also crept up for more junior staff.
“The market has really picked up for private credit professionals, particularly in the mid- to senior levels in Europe, where we’ve seen firms start to build out teams,” said Anna McLeod, a consultant who focuses on credit at Private Equity Recruitment. “However, it remains a hugely competitive market for talent.”
Pay for associates in private credit — typically the point when junior bankers make the move across to the buyside — has “stabilised” at around £100,000 to £120,000, she said.
Investment banks typically pay on the lower end of the scale, McLeod added, and total compensation for juniors comes in at £150,000 to £300,000 with sign-on bonuses, annual variable pay that can reach one and a half times salary, and the chance to earn carried interest skewing pay towards buyout funds.
“We are clearly seeing growth in the sector,” said the head of Europe at a large private credit fund, who declined to go on record. “We are focused on special situations and keep hiring. However, in direct lending, I think the scale element of the business means not many people beyond the current levels will be needed.”
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First-year associates working for a large investment bank in the UK earned total compensation averaging at £174,459 for 2022, according to recruiters Dartmouth Partners, the latest numbers available.
Oliver Noye, head of credit at PER, said that most juniors moving into private credit come from the leveraged finance divisions of investment banks, but they are now seeing a “real mix” of backgrounds.
“Typically people are moving out of banking for a pay increase, but there have been a lot of redundancies in the banking sector, which has freed up talent,” he said. “There are a lot of candidates on the market, so credit funds are still very selective with who they take on.”
However, the head of Europe cautioned that increasing pay is more of a by-product of firms looking to lock in their existing talent, rather than bidding for new hires.
“A lot of money has been raised, but if you had a $6bn fund and now you have an $8bn one you don’t need that many more people,” he said.
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