Sovereign wealth funds (SWFs) are starting to shake-up their pay structures in a bid to attract and retain bulge bracket investment bankers and top private equity professionals.
SWFs have traditionally taken a fairly civil-service approach to pay – focusing on higher base pay, rather than bonuses, and capitalising on the fact that they’re usually based in parts of the world with little or no income tax. However, in an effort to compete with international financial services firms, many have started to change their remuneration structures.
“SWFs have the selling point that they’re a much safer career option, and that their pay is unlikely to be restricted by regulators in the near future, but they’re trying to be more competitive with international financial services organisations,” said Tim Wright, asset management reward leader at PwC. “This means introducing longer-term incentives – like equity participation or carried interest – so that their employees can participate in the success of the fund.”
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SWFs have been hiring relatively aggressively this year. Recently, the Qatar Investment Authority – which has been bolstering headcount for some time – brought in Ugo Arzani, previously a managing director at Bank of America Merrill Lynch in London, as its new head of consumer and retail investments, and Jason Chew, formerly the head of Greater China operations at Pramerica Real Estate Investors as head of Asia real estate. Meanwhile, the Abu Dhabi Investment Authority appointed John McCarthy as global head of infrastructure from Deutsche Bank in May, and Greg Eckersley as global head of internal equities at the beginning of 2013.
While some have criticised SWFs for being fusty state institutions, compensation is now being shaken up to compete with the private sector. Headhunters in the Middle East who focus on SWFs, suggest that a divisional leadership role typically pays $400-600k, with a bonus of around 100% of salary.
Meanwhile, lower down the ranks, the compensation split is usually 80% base salary and 20% bonus, according to a former head of recruitment at a SWF in the Middle East. However, the pay structure is more complex than this – employees are awarded a performance-related bonus each month, which can be multiples of a month’s salary, and then this is paid as an annual bonus.
“It’s difficult to pay carried interest, because it’s not simply a case of saying ‘here’s a pot of money for you to invest’; some are government-led investments, so your performance-related pay is calculated on a combination of the two,” he said. “There’s also more of a focus on base pay – there are no guarantees, so paying a higher salary is a signal to any potential new hire that they’re making the right move.”
Then, there are the benefits: think pension, housing allowance, mobile phone and utility bills paid. One headhunter tells us that the actual cash salary only accounts for 60% of what the total package is worth.
“An increasing number of investment bankers want to work in principal investment and SWFs provide an opportunity to do this,” said James Wakefield, director of Cobalt Abu Dhabi. “It’s this – rather than large pay packets – which is persuading so many people to make the move.”