While the recent economic downturn has led to painful staffing cuts by a number of large private equity firms, the bright side is that smaller firms are befitting from a larger pool of talent and more realistic compensation expectations.
“It’s a good time to find talented people,” said Jonathan Rather, chief financial officer of New York private equity firm Welsh Carson Anderson & Stowe. “We’re seeing a lot of good people out there as opposed to two or three years ago, when you were really struggling to find talent.”
Such a talent pool includes former employees of Carlyle, 3i, Blackstone, Cognetas, American Capital, Investcorp and Fortress, all of whom reportedly have cut staff – in some cases by significant percentages – since the slowdown began. With much of this downsizing occurring at the end of 2008 and the beginning of 2009, those still looking for work, or looking to make a change from investment banking to private equity, are likely finding smaller firms more attractive.
The CFO of one US middle-market private equity firm said she recently hired a controller and assistant controller who had been laid off from larger firms. She says she likely would not have been able to get such experienced professionals at the compensation level she did in a different market. She added that the current environment has also made it possible for her firm to upgrade its service providers.
Lori Sabet, managing director of global human resources for Carlyle, says recruitment periods have shortened as candidates compete for open positions. “When we are recruiting and looking for positions that were hard to fill in the past, such as in the areas of operations, IT and accounting positions, we are now able to close those much more quickly,” she said.
Meanwhile, since those are that are working are probably just glad to have a job, now is also a good time to reset expectations on compensation levels, 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 says it 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 happened.
The professional also said that team members have been told that failure to meet operating budgets may be punished come bonus season.
In addition to in-house compensation, another CFO agrees that now is also a good time to rework certain 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. It’s good for middle market firms to know this.”
Some firms are “staffing up” again in anticipation of an upturn in market activity. But others remain cautious. “We don’t want to have to turn around and let people go because we were off on our timing,” Sabet said. Instead, she says firms can use the current slowdown to step back and re-evaluate their back office operations, including cleaning up inefficiencies, getting rid of duplications, reducing bureaucracy and dealing with the much higher level of information requests coming from LPs.