The private equity industry in the United States seems to be reaching maturity, as many new firms launch stabilized, ready-to-invest capital in the billions of dollars (nicknamed “dry powder”).

Fund-raising activity has continued through 2011, as smaller funds do most of the fundraising activity despite the fact that larger funds picked up most of the capital available. This demonstrates the imbalance in the private equity industry, with the average private equity firm on their first or second fund, typically with fund sizes of less than $500 million.

The days of focusing on financial engineering to the detriment of operational improvements are now over. The new focus of the typical firm is on cutting costs and increasing portfolio revenues. For private equity professionals, this means that operational management skill sets are increasingly in demand.

What These Changes Mean for Your Compensation

Now that the industry is maturing, private equity professionals can expect some positive changes to their compensation packages. Our research has indicated an optimistic outlook for salary and bonus increases, with most private equity and VC professionals experiencing a solid level of earnings in 2011.

Compensation for almost every level of professional, from employee to partner, has increased, with many benefiting from double-digit increases in compensation. The annual average compensation for private equity and VC professionals increased 6 percent to $248,000 USD.

What to Expect at Smaller Firms

The trend towards higher compensation is benefiting employees at firms of every size. For smaller firms (less than 25 employees), total compensation has also increased dramatically. As larger firms pick up their hiring, smaller firms have needed to adjust their remuneration packages or risk losing talent.

Salary Increases in 2012 and Beyond

The good news for private equity professionals continues: We expect that these trends will continue to increase total compensation throughout 2012. More than 40% even expect double-digit increases, with most professionals looking forward to a pay rise of some sort this year. While not all workers are expecting a pay rise, these trends are helping to stabilize the industry and provide an overall highly positive outlook for the future.