As the private equity industry matures and some of the firms’ founders reach retirement age, firms have been considering their future in 2017.
In July, KKR appointed Joe Bae and Scott Nuttall as co-presidents and co-chief operating officers, with co-founders Henry Kravis and George Roberts, both 73, remain co-chairmen and co-chief executive officers. A few months later, it was Carlyle’s turn. Effective 1 January, co-chief executive officers David Rubenstein and Bill Conway and chairman Daniel D’Aniello will step back and Kewsong Lee and Glenn Youngkin will become co-CEOs.
And in mid-November, Apollo Global Management expanded its executive leadership team by naming Scott Kleinman and James Zelter as co-presidents, with the three initial founders keeping their current roles.
“We began to feel at some point that it’s time to hand the reins to younger people,” Rubenstein told Bloomberg shortly after the announcement. “Our firm is in a very good shape so we wanted to make a transition when it was in good shape.”
Letting go of the day-to-day management is a difficult task for the businessmen who have grown these firms from a few million dollars in assets under management and a handful of employees to AUM in the hundreds of billions of dollars and several thousand employees.
“Succession planning is like trust estate planning,” says Eric Zoller, founder of Sixpoint Partners, an investment bank that offers placement and investor relations services to mid-market private equity clients. “When you’re younger you tend not to think about putting a will in place and managing your estate, also because you’re smaller. As you get older you start to have a bigger family, or a bigger team around you, and you start thinking about succession.”
In addition to some founders in the industry naturally reaching retirement age and considering the future of their firms, funds of firms which specialise in buying minority stakes in GP management companies have also accelerated the succession discussion.
A handful of firms including Neuberger Berman’s Dyal Capital Partners and Goldman Sachs Asset Management’s Petershill are dedicated to buying these minority interests. This adds another variable firms need to take into account as they think about how to transition ownership.
Still, many firms have not addressed succession issues publicly. According to the Thelander-PitchBook 2015 Investment Firm Survey, nearly half of 446 surveyed US investment firms, including 160 private equity firms, said their firms didn’t have a succession plan in place (47 percent), while 62 percent said the top person at the firm was involved in creating that plan.
But with the industry’s biggest players leading the charge, it’s likely more succession planning announcements will follow. One thing’s for certain: firms that see a future for themselves in the industry cannot afford not to have a well-considered plan in place.