Armen launches index to track value-sharing in private capital
58% of GPs provide a majority of employees with access to carried interest
Only 20% share equity to more than 50% of employees
(Update: this story has been updated to include comment from Armen’s Deputy CEO.)
January 26, 2024 (Preqin News) – GPs should increase employee access to equity alongside carried interest to retain talent, according to French private equity house Armen.
The GP stake specialist makes the recommendation following its launch of a new index which shows that only a fifth of European firms share equity with a majority of their employees. The ‘Armen HEC Value Sharing Index’, which aims to chart and monitor attitudes among GPs over time, contacted over 800 small-to-mid-sized GPs – with assets under management (AUM) of less than €10bn ($10.8bn) – across 21 European countries for its initial release.
A third of the GPs contacted (223) responded, which highlights a ‘growing appreciation of the importance of value sharing for long-term success,’ Armen said. The index was produced in collaboration with HEC Junior Conseil, an association at the HEC Paris business school.
The index’s findings determine that close to 60% of participating firms share carried interest with more than 50% of their employees, and 28% of GPs with AUMs of less than €1bn ($1.1bn) provide 90–100% of employees with access to carried interest. Larger GPs that can rely on other retention mechanisms share less of the carried interest.
The report finds that fewer employees have access to share capital in firms, regardless of their size. Only 20% of participating GPs open equity compensation to more than 50% of their team, and more than half of GPs provide equity to less than 20% of employees, showing there is room for growth in sharing equity capital. The study shows that within private equity firms, equity is either shared widely among employees or not at all, with few managers in the middle ground.
‘Carried interest is a very well understood mechanism, and it is now commonly shared with the whole investment team and often with the wider team,’ Renaud Tourmente, Armen’s Deputy Chief Executive Officer and Chief Operations Officer, told Preqin News. Equity sharing as a reward mechanism lags by contrast, he added, partly because the concept of the GP itself having value is a relatively recent one.
‘As you move away from a mono-country, mono-product structure and are enlarging the base - making it less dependent on some key staff, building a brand, training and investing in human capital - then the value of the GP increases. And this is when it makes sense to share the value of the GP, to have another tool to build up the long-term alignment of interest.’
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