The best IR that money can buy

The job description of investor relations professionals varies widely among private equity firms.

Respondents to a recent survey of the private equity IR community, conducted by PEI Research, reported being responsible for media relations, brand strategy, annual meeting planning, portfolio company support, limited partner communications, development of presentations, securing of speaking engagements, fundraising, deal sourcing, website content and maintenance, podcasting, RSS feeds or blogs, and newsletters. Some are on the same level as associates at the firm, while some are among the most senior partners. Given the many facets of their duties, how should a general partner think about compensation for these professionals?

It’s helpful to think about IR professionals in terms of three levels: there are service providers, who perform marketing and communications functions, handle LP requests, etc. Then there are agents, who connect the buyers of fund interests with the sellers of fund interests – the fundraisers. Finally, there are the transactors, who represent the firm and make changes at the firm, whether it’s negotiating terms and conditions, or providing coinvestment opportunities and other incentives to entice LPs. With each level, pay goes up exponentially. Some IR professionals fall neatly into one of these levels, though many spend a portion of their time on all three functions. For those IR professionals whose role spans all three levels, then his or her compensation should reflect how much time is spent on each type of work.

The service providers tend to be compensated with a base salary and a bonus within a specified range at year end, says Steve Fitzgibbons, a member of executive search firm Russell Reynolds who specialises in matching IR professionals with private equity and venture capital firms. Their performance reviews are largely subjective, he says, which was corroborated by PEI’s survey results.

“Compensation is typically set more subjectively and not decided solely based on hard metrics.  Even if those goals exist internally, often other, less number oriented factors influence compensation decisions.”

Once an IR professional becomes involved with the fundraising process, performance benchmarks are often linked in some way to capital raised. It isn’t always as simple as dollars raised though – the difficulty of the fundraise is also taken into account. If the last fund’s performance wasn’t stellar, or some of the key men at the firm have departed, then it will be tougher to attract capital, and the fundraisers should be compensated accordingly.

For those IR professionals who are among the most senior people at the firm, compensation goes up exponentially. Those IR professionals are typically partners and participate in carry. In PEI’s survey, 50 percent of respondents said they participate in carry, with most of those who participate reporting that they are in the fourth quartile of carry distribution at their firms.

Fundraisers sometimes earn carry as well, Fitzgibbons says, but service providers typically do not.
“The really top people are definitely involved with bringing assets into the firm,” he says. “As you become more senior and your function is viewed as more value added, those tend to be the people that justify carry. And the flip side would be true, those viewed as less senior, more administrative, that’s going to fall on the other side of the line,” he says.