Inside the GP: Operators, please

While the hiring trends of private equity managers are heavily constrained across the lifetime of a fund, there is such a thing as the dream candidate who will always find a job with a buyout firm. Just now, that candidate is an operating partner.

“If I were to categorise it, probably the person in hottest demand would have the operating partner profile,” says Burke St John, vice chairman and head of the private equity practice at search firm CTPartners in New York. “That means an experienced industry executive with successful profit-and-loss responsibility, who brings operational and industry insight that equates to value creation.”

The demand for such professionals has been growing amongst private equity firms around the world for some time, but has been nearing fever pitch in the last 12 months.

Simon Havers is a UK-based consultant with the executive search firm Odgers Berndtson, specialising in projects for the buyout industry (in his previous career, he used to run Baird Capital, and is a former chairman of the British Private Equity and Venture Capital Association). He says that high prices for acquisitions are preventing sponsors doing as many deals as they would currently like, which in turn is putting constraints on recruitment appetite. Nevertheless, there is a desire on the part of many firms to bring in more operating resource.

Havers says: “Whereas back in 2008 that demand was for operating partners who knew how to run a tight ship or take cost out of a business to survive a recession, the demand now is much more for people who can help drive revenue growth. That inevitably means demand for people who understand how to apply digital technology and use mobile and social media to drive growth.”

Such individuals are top of the list not only for private equity firms, however, but also within the technology sector and among quoted businesses, where others are seeking to recruit managers who understand how to use technology to drive businesses forward.

Havers says: “Unfortunately private equity is not especially competitive, because the salary levels in some of the larger technology giants can be pretty eye-watering, and the premise of carried interest isn’t completely persuasive for people who have got a long-term incentive plan (LTIP) in a quoted business. Those LTIPs can pay out fairly chunky sums of money if things go well.”

With investors putting pressure on managers to demonstrate value creation credentials, operations professionals are as much in demand as the dealmakers.

Jonathan Goldstein, partner with Heidrick & Struggles in New York and head of the global private equity practice in the Americas, agrees that the profile of the ideal operating partner candidate has changed.

“The role has evolved over time,” he says. “When the downturn happened in 2008, a lot of LPs were demanding that private equity firms had operating partners, and the private equity firms didn’t know how to integrate them or what their role should be. We have seen a steady increase in the number of searches for operating partners since, and that role will continue to grow.”