While the ongoing economic downturn has led to painful staffing cuts by a number of large private equity players, the good news is that smaller firms that struggled to land top-quality professionals two or three years ago now have the opportunity to take advantage of a larger pool of available talent.
In fact, major firms and investment banks have been bleeding talent.
Private equity houses that have cut staff include The Carlyle Group, 3i, The Blackstone Group, Cognetas, American Capital, Investcorp and Fortress Investment Group. In some cases, the firms have culled personnel by significant percentages since the slowdown began.
With much of this downsizing occurring at the end of 2008 and the beginning of 2009, refugees from some of these firms have likely become more than willing to work for smaller firms, especially the longer they remained unemployed.
While not every private equity firm is currently in need of more people in the deal team, almost every firm now feels the need to upgrade financial, operational and investor-relations capabilities.
The CFO of one US mid-market firm recently hired a controller and assistant controller, each of whom had been laid off from larger firms. She noted she would not likely have been able to hire such experienced professionals during past market cycles when they commanded higher compensation levels.
Many employees in the downturn are probably thrilled to even be employed, and so this is a good time for firms to reset expectations on compensation levels for existing employees, which had been running high over the last two to three years, say human resources professionals. A professional from one large US private equity firm said the firm has not had to increase its compensation budget in 2009 from what it originally set at the beginning of the year, which was the first time that has ever happened.
Another CFO said the time is also right to rework consulting agreements. “We’ve reduced our consulting costs 20 percent to 25 percent,” he said. “Every consultant you work with, if you are not reducing those costs by 20 percent to 25 percent you are not doing a good job.”
In the economic downturn, the pain of the biggest players in the private equity game could – and should – turn into major gains for smaller firms.
As the private equity industry in general contracts in the next few years with smaller funds sizes and smaller deals, the smaller firms need to be poised to take advantage of the these scaled-down opportunities for which they are naturally equipped.