In the post-crisis era, uncertain markets and regulatory change have left a mixed picture with regards to hiring by private equity firms. The number of new funds continues to decline and limited partner reticence on re-ups continues to encourage a contraction in the industry. In 2009, we saw a significant increase in operating partner hires. Last year saw more execution-level hiring at associate and senior associate ranks reflecting a pick-up in deal flow. Hiring in 2011 however, has been far more uneven and institutionally specific, a trend set to continue into 2012.
A flight to quality and to scaled platforms amongst LPs has left many UK and European mid-sized players starved of cornerstone investors for new funds. Many will simply not be able to raise sufficient new capital in 2012. As a consequence, there is a growing availability of experienced private equity investor talent, open minded to new options, that has not been seen for many years. For family offices, sovereign wealth and inbound investment firms looking to open or build European presence, there has never been a better time to source high quality hires.
We are also seeing continued operational partner hires, but at some funds, current operational partners are being asked to broaden their responsibilities from portfolio management to include deal origination. This is an effort to widen the deal sourcing network and to drive greater value out of their partnership group.
While there is economic uncertainty in the developed markets, there has also been significant activity, particularly at the mid-market level, in many emerging markets, notably in Central Europe and in the Middle East. This is being reflected in an uptick in execution-level hires at a number of private equity players operating in these regions. There has also been a return to some investment professional hiring at sovereign wealth funds, both within the MENA region and in Asia.
The increased regulatory scrutiny has clearly prompted most of the major banks to hive off any private equity businesses they had. However, some banks have been developing feeder funds for their private wealth management clients, to provide them with access to private equity. HSBC Alternative Investments’ hire in June of Simon Jennings from UBS Wealth Management was a reflection of the growing importance of private wealth as a significant investor in private equity.
There are also the hiring trends within the internal infrastructure of the private equity firms themselves. An on-going, difficult fundraising environment both for new fund initiatives and in terms of re-ups has led to strong demand for fundraising professionals with deep links to the investor universes along with related appetite in investor relations, and in compliance.
In a reflection of this trend, while some investment banks have been exiting the third party fundraising world for private equity, others have been developing and building their placement efforts. All these developments reflect the more complex relationship that has evolved between private equity players and their investor base.
Moving to the portfolio side, there is on-going demand for leadership profiles, notably in industrials, healthcare and in the services sectors. In particular, there is a noticeable desire for management profiles with a strong combination of skill-sets: for example, prior direct sector track record combined with financial and operational turnaround experience or multinational management experience and a demonstrable track record of acquisitions and integrations. The appetite for riskier, lateral hires is far more muted, with the hiring focus clearly geared towards the “safer bets,” of those with direct, related experience who can slot into the seat and seek to make a difference relatively quickly.
In summary then, the outlook for private equity hiring on the portfolio side remains robust at the leadership level particularly in key sectors, but remains mixed and largely reactive on the investment side with some notable exceptions. However, for the players with the capital and capability to think longer term on building their business and acquiring talent, there may not be a better time to hire.
Aidan Kennedy is a partner within the global financial services practice of recruitment consultant CTPartners.