This year’s fundraising environment is altering the human resources side of the private equity industry in a way that market sources say they haven’t seen in recent memory.

“This is the craziest environment I’ve ever seen,” says Sita Kolossa, chief executive and founder at Nordbridge, an executive search firm focusing on private equity, family offices, hedge funds and risk management. Clients used to have recruitment cycles – something that has gone out the window since the fourth quarter of last year, she says. “It’s just, ‘We need people now. We need people ASAP.’”

A confluence of GPs all seeking capital from LPs at the same time means that many sponsors have more roles in need of filling than in previous years. Private equity funds were seeking almost $1.2 trillion across 3,801 vehicles as of mid-April – nearly double the $690 billion sought across 3,114 funds at the same point last year, according to Private Equity International’s Fundraising Report Q1 2022. In Europe alone, seven of the 10 largest buyout-focused firms were in market with flagship funds as of early July, with Advent International and BC Partners both having closed flagship funds this year.

One effect that compressed fundraising cycles are having on human resources is the increased pressure being put on LPs. From US pension funds to Europe-based endowments and insurance companies, investment staff are under strain like never before, according to multiple conversations PEl and affiliate title Buyouts have had with institutional investors over the past six months.

Some of these LPs have chosen to jump ship to other institutions. Steve Moseley left Alaska Permanent Fund as head of alternative investments to join Wafra in June; Matt Vorachen exited Dutch pension manager MN and joined Achmea Investment Management as a private equity portfolio manager in June, and Christine Winslow left Dutch pension PGGM as director of private equity to join GP Grafine Partners in May.

“There’s an incredible amount of seat changing at LPs,” says a London-based managing director at a global buyout firm. This is in part due to investment professionals working from home and realising they’d like to try their hand at something else, and in part a result of new opportunities to switch jobs arising because of a “very active and busy market”, the MD says.

Fight for talent

According to Gabrielle Joseph, head of due diligence and client development at placement agent and advisory firm Rede Partners, the LP community is facing a battle for talent.

“With this crazy fundraising environment, there are LPs who simply cannot process the volume of re-ups that’s being thrown at them,” Joseph says. Economic structures within the LP community differ and it will become increasingly competitive for LPs to recruit and retain talent.

“There will be more creativity in the way that certain LP structures will need to remunerate their stars, which is a complex process to navigate when you think about the purposes and structures of some of these LPs,” Joseph adds.

At GPs, the frenetic fundraising environment is playing out in several ways, market sources tell PEI. Investment professionals – especially junior ones – are moving to wherever pays them the most money, as GPs offer more attractive terms to entice talent. Such sweeteners include bonuses at double base salary or carry from day one, says Kolossa.

“There’s no more loyalty,” Kolossa adds. In the past, individuals would stay at a firm because they wanted to forge a career as an investor; in today’s environment, people are more focused on money, career progression and financial incentives, she points out.

Even seasoned investment professionals at the partner level are considering their options, says a Europe-based LP that invests in some of the industry’s biggest name funds.

“Just looking at the big firms, the spin-out rate and how many people there are leaving… there’s so much turnover [at some of the firms],” the LP says. The best stars will not stay at firms they don’t believe are headed in the right direction, he adds.

“They will eventually do something on their own or move to a place where there’s more freedom; there’s more carry to be gained.” He adds that this won’t happen at every firm, yet people leaving is still a risk that LPs must bear in mind when considering committing to a GP’s fund.