Wall Street’s favourite form of compensation has made it to Abu Dhabi

More private equity-style paychecks could soon be making their way to the Middle East.With sovereign wealth funds like the Abu Dhabi Investment Authority, and Saudi Arabia’s Public Investment Fund hiring more talent from well-known Wall Street firms, a growing number of candidates are inquiring about their ability to offer carried interest awards, according to people familiar with the matter.Such compensation, tied to gains on investments, is already on offer at a few of Abu Dhabi’s newer firms. Some employees at Mubadala Capital and Lunate get a form of carry as part of their pay, the people said, helping both firms lure talent away from the likes of Apollo Global Management Inc and Carlyle Group Inc in recent months.Historically, Gulf funds have relied on their low tax regimes and a lengthy list of lifestyle perks to help bring in staff, offering everything from stipends for school fees to car allowances to paying for executives’ flights home to see their families. Their race for talent has grown more acute in recent years, amid a flood of banks, hedge funds and private equity outfits that have opened local outposts.Against that backdrop, the Middle East investing giants are getting more serious about hoovering up the best employees from all corners of finance as they seek to deploy their billions and pivot their economies away from oil. Along the way, they’re minting a new breed of top dog on Wall Street.For instance, inside Mubadala Capital — the sovereign wealth fund’s asset management subsidiary — the decision to offer a form of carry has already helped create many multimillionaires within the firm."It’s no longer just about base and bonus,” said George Sames, managing director at the recruiting firm Oneira Talent Solutions. "Whether it’s sovereign wealth funds or local family offices, there’s growing pressure to introduce carry structures — and it’s already proven effective at a few firms here in Abu Dhabi that use it to attract and retain top-tier talent.”ADIA and Mubadala are known as some of the biggest backers of international hedge funds and private equity firms. But with some of its newer funds, Abu Dhabi wanted to use its vast oil wealth to advance its presence in industries including artificial intelligence, sustainable energy and healthcare through direct dealmaking.It has meant funds like Lunate and Mubadala Capital need the types of number-crunchers that can most often be found in private equity firms. Another Abu Dhabi-based fund, MGX — which was set up last year and has a goal of eventually topping $100bn in assets — has had success in this area, adding executives from Warburg Pincus and Apollo recently.The funds have quickly realised there’s a limited pool of individuals who both have the pedigree they need and are willing to make a move to the Middle East. They learned they needed to come up with a compensation structure that matched what private equity firms were offering, the people familiar with the matter said.That’s where carried interest comes in.In the private equity industry, investment professionals are often awarded small stakes in the firm as part of their compensation. Their carry is their share of the profits that the overall fund generates whenever it sells a portfolio company.Such arrangements are usually viewed as win-win: executives are incentivised to source good deals and end-investors tend to like that they have skin in the game.Within Gulf funds, the packages can work a little differently, according to the people familiar with the matter. The option to earn carry is typically only available to some high-level executives. And these employees aren’t given actual ownership stakes; instead, the payments are arranged as so-called "phantom” or "shadow” carry in industry parlance, the people said.Such arrangements aren’t unheard of — they can be used in traditional private equity firms for juniors and other back office staffers because they replicate many of the perks of carried interest without the need to transfer equity stakes in a fund."When we speak to talent looking to move to the Middle East, carry is often one of the very first things they ask about,” said Oscar Orellana-Hyder co-founder of the recruiting firm Cordell Partners. "Carry is a powerful magnet for the most ambitious candidates — the ones who want their compensation to reflect their performance. It offers effectively uncapped earning potential, tied directly to their own investment returns and ingenuity.”Sovereign wealth funds across the Gulf now employ about 9,000 people, according to a Deloitte report published earlier this year.These funds haven’t historically been known for ultra-generous paydays. Vice presidents — who generally have 8 to 10 years experience — typically command base salaries between $230,000 and $260,000 a year, according to one of the people familiar with the matter. That’s comparable with the typical compensation for staffers at that level inside private equity funds in the region.While ADIA doesn’t currently offer carry, it has created other forms of long-term incentives that reward the 100 or so investment managers it has working on private equity-style deals, the people familiar with the matter said.The $1.1tn firm and its peers are facing off with the likes of Brookfield Asset Management Ltd and Blackstone Inc for staff, where paychecks for senior partners can stretch into the tens of millions when they successfully sell portfolio companies. At times, that’s been enough to lure away more established executives from the Gulf funds.At Mubadala Investment Co a small number of employees have begun receiving a form of compensation that’s tied to their investment performance, according to people familiar with the matter.Mubadala’s decision to begin offering such incentives come as the $330bn firm has been debating changing its strategy for private equity deals, some of the people familiar with the matter said. Historically, the firm is known for taking minority stakes and writing checks in the $100mn-$500mn range.But the fund is considering upping its typical investment and taking larger ownership positions in companies, the people said. Such a move would mean the firm needs even more employees with typical private equity experience.Representatives for Lunate, ADIA, PIF, Mubadala and Mubadala Capital either declined to comment or did not have immediate comment when reached.It’s not just the promise of phantom carry that’s helping Gulf funds win over fresh talent.A long-awaited rebound in dealmaking and initial public offerings in some parts of the world has been slow to materialise this year and private equity firms have continued to struggle to offload portfolio companies at attractive valuations.For executives inside private equity funds, that’s hurt the income they make from carry in recent years. It’s also made it easier for Gulf funds to make the case to potential employees that they could mint new fortunes in the sunny shores of Abu Dhabi."We’re seeing more candidates, especially from the West, coming to the Middle East,” Sames said. But, he added, they all have the same expectation: "Carry, as part of their performance package.”