As assets under management (AUM) grow, talent management has become a greater concern for private equity firms of all size – but different priorities are emerging.
- Larger private equity firms use salary and scale, while smaller firms adapt to pressure
- Carry more likely to be offered to staff with tenure of more than four years
- Hybrid working not a priority for most firms, despite expectations of juniors
As assets under management (AUM) grow, talent management has become a greater concern for private equity firms of all size – but different priorities are emerging.
According to EY’s 2023 Global Private Equity Survey, published last month, 65% of CFOs of firms with AUM of between $2.5bn and $15bn ranked talent management as their top priority after fundraising, with 56% of CFOs in the over $15bn category doing the same.
Only CFOs at firms with AUM of less than $2.5bn have more pressing concerns, with product/strategy expansion (49%) coming in slightly ahead of talent management (46%).
Investors and fund managers around the world, meanwhile, remain positive about recruitment and pay at their firms, despite difficult market conditions, according to the Preqin Private Capital Compensation and Employment Review 2023. Overall, 61% of the firms surveyed added to their headcount in 2021–22, with almost four-fifths expecting to increase the size of their workforces in the 2022–23 period.
In terms of talent retention, the EY survey found compensation is still a go-to tool for employers but there are varying approaches based on the tenure of the staff concerned. While higher annual salaries are common rewards across the board – 84% of respondents to the Preqin survey increased firm-wide base salaries last year, and 73% expect to do so this year – EY’s survey found that employees who have been with their firms for four years or more are more likely to be offered additional incentives such as carried interest.
Attracting and retaining talent at junior levels is noted as a particular challenge in the EY survey, perhaps heightened by new flexible working expectations. However, less than a third of survey respondents across firms of all sizes said developing an effective hybrid work strategy was a priority – an “indication that many are returning to business as usual despite the ongoing COVID-19 pandemic,” said the survey.
There seems to be a disconnect here though. Across firms of all sizes, 86% of CFOs expect employees to work more than three days per week in the office, despite nearly 60% recognising that staff want to spend less time than that in the office, or that they are unsure what their employees feel about office attendance. Despite this, private equity firms remain confident in their ability to meet return-to-office targets with 87% of all firms believing they will achieve their targeted goals within the next 12 months.
In a bid to better understand employee sentiment, firms of different sizes are employing different tools. Some 82% of larger firms are relying on more traditional formal measures such as employee surveys and focus groups for feedback, while 85% of smaller firms are gaining insight into staff needs through informal social gatherings.
One solution to the challenges of human resourcing, for larger firms at least, has been to look outside the company for more permanent tech-based solutions, with 59% subsequently turning to additional outsourcing and increased levels of automation to tackle talent shortages. By comparison, over half (59%) of smaller firms said they hadn’t been impacted at all by hiring challenges, perhaps because they were able to adapt existing working practices to absorb any increase in workload or had already been outsourcing many of their finance functions.
Key Takeaway | Larger and smaller PE firms are increasingly finding different ways to manage talent and hiring issues as AUM grows
