Trade press headlines from Hong Kong to London are talking about a ‘War for Talent’ in private equity. In the past seven days, more than 440 jobs in private equity and venture capital were added to eFinancialCareers, which seems like a lot. It does not include the hundreds of open positions posted lately on LinkedIn or the websites of buyout houses, consulting firms and alternative asset managers. How fierce is the competition to hire professionals in private equity in 2015? We asked three experts.
“The big recruiting season is in the autumn and all indicators are signaling it will be a very competitive one this year,” said Gail McManus, founder of Private Equity Recruitment in a telephone interview with DealMarket Digest (pictured left).
There are more jobs than people with the skills, personality and background to fill the jobs. “The big buyout firms are competing with each other, and private equity firms are competing with investment banks for talent, particularly at the entry level,” said McManus whose fifteen year old executive search firm places finance professionals in UK, Europe, the Middle East, Latin America and Asia.
The situation is similar in the Americas. “There’s been a dramatic increase in recruiting investment professionals into private equity firms,” noted Jonathan Goldstein who heads Heidrick & Struggles’ global Private Equity Practice, Americas in a phone interview (pictured below left).
Compensation is an indicator of the supply demand dynamic. “In the Americas, compensation packages are very much tied to the number of professionals at the firm and the assets under management. Overall, we have seen an increase in cash compensation, particularly bonuses year over year,” said Goldstein.
Suitable candidates who meet the industry’s high standards and make it through the long interview process in private equity have a choice about where to work, be it in an upper mid-market firm, one of the big brand name private equity fund managers, or in another area of the financial sector. They have the luxury of deciding on a job based on personal preferences like opportunity and location. “It’s almost guaranteed that a candidate that private equity would want to hire, somebody else will also want to hire,” said McManus.
In Asia, the situation is particularly acute. “It is not a war for talent. It is a shortage of talent,” said McManus. Staff churn is high in Asia and it is very hard for private equity firms to find suitable candidates. The same goes for the Middle East region where sovereign wealth funds are hungry for private equity skills.
Recruiters in those regions have developed some techniques to manage the talent shortage, such as hiring more junior people and trying to hire expertise from outside the region, seeking candidates that have international experience, according to McManus. But because London and other European centers have plenty of opportunities, it’s harder to attract expats.
Relocation from Europe to the United States or the United States to Europe is not a pressing trend either. “Certainly, buyout firms might share resources across regions but private equity is very much a targeted business,” said Goldstein.
Operating Partners in Demand
Since the financial crisis there has been a steady increase in hiring, according to Goldstein, particularly operating partners and operating executives. “We’ve also seen private equity firms hire more operating executives. While some PE firms do not value this experience, others are looking for top talent that offers the IQ [Intelligence Quotient] and EQ [Emotional Quotient] that is not easy to find in this highly competitive market,” said Goldstein.
Technical investing skills, functional expertise, good communication skills and the ability to analyze financials are important assets. Andros Payne, founder and CEO of Zürich, Switzerland-based Humatica, a strategy consultancy that works with private-equity backed companies (pictured left) echoed Goldstein’s view of the recruiting challenge, “The combination is as hard to find as a needle in a haystack,” said Payne.
Candidates typically come from the ranks of management consulting firms and the C-suite of mid-sized to large enterprises. But the leadership qualities required are specialized. “It has to be a CEO who can be a counselor and mentor, not necessarily an authoritarian or aggressive leader, [a person who is] able to handle multiple assignments and portfolio companies at a time. Time management is critical,” said Goldstein.
The growth in demand for operating partners comes as result of the sheer expansion of the private equity industry with many leading firms managing large portfolios but is also a result of strategy shift in PE, from financial engineering to a transformational one. “It is challenging to find proprietary deals and it costs more to buy companies than in the past, so transformation is seen as key to increasing value at exit,” explained Goldstein.
The idea is that more added value activity and more risk-taking is called for, according to Payne. Family businesses don’t need to sell. Non-core assets and large corporates are expensive so it takes more effort to ensure private equity type of returns. “In the past it was simpler, apply leverage and incentivize management,” said Payne.