As a result of the lack of activity at the end of 1998 and into early 1999 in European and Asian emerging markets, the project finance market suffered significant redundancies, staff were repatriated and others were transferred to other product areas. The effects of the downturn were felt especially among those working in the emerging markets of Central and Eastern Europe, Latin America and the Far East.

At one stage it had looked as though job losses would be widespread. However, rather than making wholesale job cuts, banks diverted resources from less active areas of project finance to busier sectors. This situation was aided by business holding up in the non-emerging North American and West European markets, the deregulation of the US power market, the continued growth of PFI in the UK and interest in the telecoms sector providing much of the impetus for senior level hires.

Towards the end of 1999, banks started to rediscover their appetite for projects in Asia. We now predict that by the third quarter of 2000, due to the increasing stream of deals, demand for experienced project financiers will increase significantly and banks will need to look at the European and US markets for potential recruits.

Innovation in European project finance

In the UK, PFI has continued to be the dominant source of project work. The success of this initiative has led to more London-based institutions seeking to export their PFI capabilities to the rest of Europe, where opportunities have been identified by both banks and advisory-only organisations.

European project finance generally is seeing intense competition between banks to win mandates. Added to this the market is attracting new players ? Allied Irish Bank recruited David Webster to head a London project finance team; German mortgage bank, Depfa, established a project finance team in Dublin by hiring Paul Leatherdale from Sumitomo and Bank of Ireland is about to recruit a senior PFI specialist to launch its global project finance strategy.

There is also increasing sophistication of transactions resulting in a growing emphasis on complex financing techniques and a move away from the traditional concentration on loans. One example of market innovation is the greater use of project bonds. In the UK, for instance, several bond-financed PFI transactions were launched during 1999, across a variety of industry sectors including healthcare and water. Furthermore it is anticipated that project finance transactions will make greater use of securitisation and derivatives techniques and consequently we would contend that the ?project financier? will become, if not already so, a ?structured financier?.

Demand for sophisticated skills

One effect of increasing innovation is that today's project financiers are, on the whole, better qualified than their counterparts in earlier years. The likely profile of a project financier is a graduate with a technical/engineering degree, sometimes with a further qualification (usually MBA) in finance and work experience gained with an international bank offering a range of financing methods.

Recruitment in project finance undoubtedly picked up during 1999. Merger negotiations between banks, and demand from the new market entrants, created many of the moves, particularly among staff concerned by the uncertain outcome.

As in 1998 and earlier years, some banks which were subject to advances from other institutions sought to retain their staff by offering enhanced annual bonuses or significant one-off retention bonuses, as happened during the three-way discussions between SG, BNP and Paribas and the failed merger between Dresdner Bank and Deutsche Bank.

Growing non-bank project financiers

The Merger activity has caused an increasing movement of professionals from banks and other financial institutions into industry and sponsors. Project finance professionals are joining:

? leading consulting/professional services/accountancy firms to focus on advisory work,

? investment/insurance companies to establish funds to invest in infrastructure and other projects; and

? construction, facilities management, and other sponsor/ developer companies which are active in project finance transactions.

We also expect to see a number of opportunities arising from the establishment of Partnerships UK (?PUK?). Indeed the high profile James Stewart, has been hired as chief executive of PUK, reportedly on a package up to £300,000, from his lucrative role as head of project finance at Newcourt Capital.

Rising remuneration

Salaries in the banking industry overall have not been affected by the crises in global financial markets in 1998 as much as expected. Project finance is no exception.

In terms of basic salary, the biggest change from our previous survey has been the 25-35% increase in managers' salaries. These increases reflect both the value placed on managers as transactors and the determination of banks to keep their middle-ranking staff. At other levels, the change in the basic salary range has been limited to just a few thousand pounds.

Bonuses have increased at all levels, irrespective of institution, with the exception of organisations that had a significant exposure to emerging markets, where bonuses paid to more junior staff have in some cases suffered quite dramatically. Otherwise, bonuses of eighty-five percent or above were received by top performing directors, assistant directors and managers. We know at least three senior director level originators operating in the power, PFI and infrastructure sectors who have received bonuses of 200-300%. Lower down the ladder, bonus levels were also generally higher than in 1999.

There is a dearth of high-quality juniors within project finance teams in London, particularly those with financial modelling and analytical skills. Consequently, banks are seeking juniors with an accountancy background and solid experience of modelling, to enter project finance. As a result of this demand, 2000 may bring a similar leap in the remuneration of assistant managers and executives to that enjoyed by managers during 1999.