Human resources management and compensation for secondary market investment firms
Human resources for secondaries fund managers involves building and supporting teams with specialized skills in secondary market investing. The strategy requires professionals who can evaluate complex portfolios of existing fund interests, navigate transaction execution, and manage operations for portfolios containing numerous underlying positions. Effective HR infrastructure supports talent acquisition, retention, and development for these specialized roles.
Secondaries teams typically include several functional areas:
Deal teams evaluate and execute secondary transactions. Key roles include:
Secondaries investment roles require skills somewhat different from primary fund investing. Evaluating existing portfolios demands expertise in fund analysis, cash flow modeling, and pricing methodology rather than direct company due diligence.
The operational complexity of managing portfolios with many underlying positions requires capable operations staff:
Depending on firm size, additional support may include:
Compensation in secondaries firms typically combines several elements:
Fixed compensation provides stable income and varies based on role, experience, and market conditions. Secondaries compensation generally aligns with broader private equity markets, though specific levels depend on firm size, location, and competitive dynamics.
Discretionary or formulaic bonuses reward annual performance. Bonus pools may be tied to fund performance metrics, individual contributions, or a combination. Secondaries firms balance rewarding near-term activity against the longer-term nature of fund returns.
Profit participation through carried interest represents the most significant compensation component for senior investment professionals. Carry allocation, vesting schedules, and terms vary by firm. Key considerations include:
Allocation percentages across team members, balancing senior-junior splits and rewarding key contributors.
Vesting schedules, often spanning four to five years with various structures for departing employees.
Treatment of carry across multiple fund vintages as firms raise successor funds.
Some firms offer co-investment opportunities allowing employees to invest alongside the fund. While not direct compensation, these rights can provide meaningful additional return opportunity.
Competitive benefits support talent attraction and retention:
Health insurance remains a baseline expectation. Small firms may use professional employer organizations (PEOs) to access group health plans, while larger firms may arrange coverage directly.
Retirement plans, typically 401(k) arrangements, provide tax-advantaged savings. Employer matching, if offered, adds compensation value.
Paid time off policies in secondaries firms often provide substantial flexibility, recognizing deal-driven work patterns that may involve intense periods followed by slower times.
Other benefits may include life and disability insurance, professional development support, parental leave, and various wellness benefits.
Recruiting for secondaries roles involves sourcing candidates with relevant skills:
Investment professionals may come from other secondaries firms, primary private equity funds, investment banking, or fund of funds. The specific analytical skills for secondary market investing may require training even for experienced hires.
Operations professionals may transition from fund administration, accounting firms, or other private fund operations roles. Familiarity with fund accounting and multi-fund structures is valuable.
Recruiting channels include direct outreach, recruiters specializing in private equity, industry networks, and professional associations focused on secondaries.
The management company typically serves as employer for firm personnel. Structuring employment relationships involves:
Employment agreements documenting compensation terms, including any carried interest or co-investment rights. Careful drafting addresses vesting, forfeiture, and departure scenarios.
Confidentiality and non-solicitation provisions protecting firm relationships and information.
Intellectual property provisions addressing deal analysis, models, and other work product.
Partner arrangements may differ from employee relationships, with some senior professionals holding ownership interests in the management company rather than employment relationships.
Smaller secondaries firms face choices about HR administration:
In-house administration works where operations staff can manage payroll, benefits, and compliance. This provides direct control but requires investment in capabilities.
Professional Employer Organizations offer comprehensive HR outsourcing, handling payroll, benefits, and compliance. PEOs can provide benefits access typically available only to larger employers.
Payroll and benefits administrators offer more limited outsourcing, handling specific functions while leaving others to the firm.