Last year was a supersized one for private markets – buyout deal value and exits shot to new records, according to Bain & Company’s Global Private Equity Report 2022. Fundraising also saw a burst of activity, with $1.2 trillion gathered in 2021 by buyout, venture, growth, secondaries, infrastructure, real estate and co-investment funds.
It was also a year where firms had to think hard about how to compete differently, notably in terms of strategy, specialisation, multi-product offerings and disruption via growth funds. When it comes to finding and retaining talent, all have had to adjust their approach to compete effectively in an unsettled labour market and against the backdrop of a changing workplace.
According to EY’s 2022 Global Private Equity Survey, talent management was the top priority among respondents after asset growth, with some 68 percent of firms with $15 billion in their funds reporting as much. Many investors have also said they are spending more time reviewing the effectiveness of their private equity firms’ talent management programmes. Some 43 percent said they have increased their scrutiny on these programmes during due diligence.
“As demonstrated by today’s incredibly competitive job market, talent is one of the few key value creators critical to driving outperformance,” says Gabriel Caillaux, co-president, managing director and head of EMEA at General Atlantic. “There is a growing understanding amongst GPs, LPs and now the broader investment community that it is investment in talent that delivers the robust perspectives and multi-faceted solutions needed to successfully source winning investment opportunities and partner with visionary leaders.”
Caillaux says a diverse team can create a differentiated approach to help identify, build and scale companies into global market leaders. “Beyond asset growth, growth equity is ultimately a talent business.”
For Jacolene Otto, head of private equity and real estate at Maitland Fund Services, talent management has become more front-of-mind given the remote working that was ushered in during the pandemic. What was initially an emergency response has become the norm, and employees are reluctant to give up this new-found flexibility, notes Otto.
Regardless of the new office paradigm, “talent management within private equity has always been important”, says Otto, “especially for GPs who want continuity throughout the lifespan of a fund, given their people are highly specialised and hold key relationships with LPs and investors”.
Otto notes negotiations have become about more than just salary, with work-life balance, flexibility and other benefits rising in importance. “At the beginning of the pandemic there was a sense of fear – people just wanted to hold on to their jobs and were afraid to move. Now the mood is more reflective – we are all looking at how work fits into our overall lives, and people are prepared to walk if certain benefits aren’t there.”
“Every move is a well thought-through move,” says McManus. “With the market tightening dramatically now, people have to have a reason to move; they have to see they are going to something better.”
She notes that the abundance of jobs, particularly for juniors and mid-level professionals, has impacted how private equity firms hire. To attract talent, every firm needs to show a consistent story and a consistent set of values, she says.
Gail McManus, managing director and founder of executive search firm PER, calls this period a “Great Reflection” rather than a “Great Resignation”.
McManus, whose firm has worked with the likes of Hamilton Lane, EQT and Park Hill Group, says the bigger change in the last 12 to 18 months in the candidate market is that people are thinking about what matters to them.
Building, retaining and promoting diverse teams is also central for investment firms that want to not only survive, but thrive, notes Caillaux. He says there is growing LP demand for diverse teams, with plenty of data to support the idea that diverse teams drive better outcomes. “At General Atlantic, we’re focused on making tangible changes and setting quantitative targets to sustainably accelerate progress across the firm at all levels. DE&I progress ultimately starts with recruitment and nurturing talent.”
Of the firm’s 2021 associate class, 40 percent are female, and 50 percent are ethnically diverse, while the 2021 summer analyst class was 100 percent diverse, he adds.
Maitland’s Otto says: “Inclusion is about more than just initiatives and numbers. It’s about how minorities are actually treated within a business: if you’re a woman and go into a meeting, will a male colleague feel the need to repeat what you have just said?”
For women in private equity there is also the remaining perception that family life will interrupt one’s career, which needs work, Otto adds. “While it’s great to see women and people from minority backgrounds being promoted, no one wants to be the ‘token’ anything. We will know we’ve reached equality when we don’t have to emphasise the fact that someone is a female director or ethnic minority leader.”
More can be done
Private equity firms have gradually stepped up efforts to ensure advancement in diversity metrics in recent years. A report from McKinsey & Company that looks at the state of diversity in US private equity found that PE firms increased their percentage of ethnically diverse talent and women employees in 2020 at a higher rate compared with corporate America. Similarly, there was a higher percentage of women promoted into the C-suite of PE firms, surpassing the rate of men (6 percent of eligible women were promoted compared with 1 percent of eligible men), according to the report.
Caillaux notes that while there is a universal consensus that progress needs to be made in advancing diversity in the industry, structural barriers remain. To overcome these, General Atlantic has partnered with organisations focused on diversity, equity and inclusion, including the likes of Girls Who Invest, a non-profit dedicated to increasing the number of women in portfolio management and executive leadership in the asset management industry; OUT Investors, an LGBT+ network for industry professionals; and Sponsors for Educational Opportunity, which aims to create a more equitable society by closing the academic and career opportunity gaps for young people from underserved and historically excluded communities.
Otto says: “The reputation of the private equity sector is that it is cut-throat, but, in fact, I would say it is more friendly and welcoming than many in financial services. However, even though firms want the best person for the job, it’s still a lot about who you know and the circles that you move in.
“One of the remaining frustrations can be how to break into the ‘boys’ club’. As a solution, many industry bodies are doing great work providing opportunities for women to network and take more space in the sector.”
“At the end of the day, PE has got to be a place that people want to work in, and that might mean promoting more inclusion,” says McManus. The next challenge for firms is keeping their diverse people, she adds.