The panel featured Philipp Haindl, Founding Partner at Serafin Group; Torsten Krumm, Chairman of the Investment Committee and Managing Partner at HQ Equita; Thomas Racky, Co-Founder and Managing Director at Strategic Family Office Advisors; and Richard G. Ramsauer, Co-Founder and Managing Partner at VTC Industriebeteiligungen. Dr. Carsten Böhm, Partner at McDermott Will & Emery, headed the expert group.
In contrast to previous panels, which discussed the investment side of evergreens and industry holdings, this year’s discussion focused on looking behind the scenes, i.e., how do they incentivize their partners, managers and employees?
Immediately it became clear that very different models exist, all of which bear the risk of being over-incentive and over-ambitious as well as in-flexible.
When asked which motivation structures have proven beneficial in the past, the panelists agreed that there are numerous models, but classic structures are still the most reliable. Drawing on the panelists’ different experiences, the discussion focused on tools such as net-asset-value-based models (NAV;
accumulated equity value), bonus payments based on individual goals and targets and buy & hold-returns. PE fund structures with carries and hurdle rates are also common in the market today. Undoubtedly, it is important to avoid schemes where assets remain in-house for a long time after exit, accumulating negative interest rates.
The panelists observed that management equity participation schemes also prove to be effective mechanisms for incentivizing as does management retention by means of redeemable participation and dividend payment. Notably, an equity participation is an ideal binding force which can be customized individually (i.e. limited to a particular portfolio company). Bonus payments in combination with direct participation schemes are most common.
Overall, the panelists agreed that the early implementation of an incentive scheme is key and predicted that new participation models will come about, especially on the secondary market, as incentivization is not only a monetary issue and needs to be addressed on a case-to-case basis.
Dr. Carsten Böhm,McDermott Will & Emery