Private equity firms of all sizes are prioritising talent management over any other strategy, but they face challenges and may end up re-building their organisations in the process…
Hiring challenges in most developed economies have forced many private equity firms to think harder about where they are under-resourced and how their organization is structured.
One area is receiving particular attention.
EY’s latest Global Private Equity survey shows that, aside from asset growth, talent management is the most important strategic priority for firms of all sizes.
Data science, operations and reporting roles are all in high demand across the industry, as LPs push for more transparency and GPs attempt to unlock value across their portfolios and firms.
“Almost all PE firms are looking to operationalize and scale the technology and data they have to benefit investors. For the first time, we’re seeing demand for chief data officers, data scientists and engineers so that firms can gain an edge,” says a service provider to the industry.
The demand for greater tech capability is wide and still in its early stages.
In a Private Equity Wire survey of more than 50 industry stakeholders, over 31 per cent confirmed they are either currently recruiting for, or have recently recruited, staff in the areas of data analytics/science or programming.
“There isn’t a single part of the alternatives industry that hasn’t had a good run, so everyone has been hiring. In the last 20 months, the market has been very buoyant,” says Charlie Hunt, director of UK at recruitment firm PER.
“The bigger funds are becoming massive asset managers and creating new strategies that require entire new teams. As a consequence, they’ve been hoovering up a lot of talent.”
Many of these fund managers are turning away from outsourcing to build large in-house teams, while other managers see value in the combination of both.
“In the past seven years, there’s been a switch from outsourcing tech efforts, to now potentially having a whole suite of data experts who help with portfolios, analyzing markets, due diligence and dealing origination,” says Hunt. “There are now jobs in PE that never used to exist – the industry has really professionalized.”
In some cases, the switch to a more tech-orientated business can also allow a firm to limit issues such as key-person risk higher up in the organisation, by drawing more value from data and analytics instead of a person’s network or knowledge.
According to EY’s January Global PE Survey, 43 per cent of GPs said that they have increased the scrutiny of their PE firms’ talent management programmes, with 30 per cent expressing a confidence in better talent management programmes signalling the firm attracts top talent within the industry.
Talent managers help firms to recruit and onboard staff at all levels, while also advising on a firm’s approach to culture, structure, training and employee benefits.
The push for the best talent in the industry has also encouraged a remodelling of the traditional PE firm, as funds work to retain and attract talent.
“PE firms are more focused on culture and employee experience than they have ever been. As well as offering perks and various incentives, they’re also looking to leverage technology to make employees’ jobs as efficient and smooth as possible,” says the service provider.
No perfect candidate
With increasing amounts of capital flowing into PE and new types of investors allocating to the asset class, the pressure is on GPs to make the right decision with regards to both their investments and hiring processes.
“Everybody, particularly in the private market space, has money to deploy for hiring, but they’re a little too focused on finding the perfect candidate all the time. Right now, they need bodies on board to help manage these growth initiatives, which might change dramatically if we see another three months of markets sliding like they are,” says Jonathan Doolan, managing partner at Indefi, a global strategy advisor.
Finding talent in reporting has been a big challenge and, despite major efforts, there appears to be a lack of talent in the space.
“There is currently a very candidate-scarce market – that has been the biggest problem we have found. On top of this, funds haven’t lowered their expectations on the quality of talent and just aren’t willing to compromise on their requirements,” says Hunt.
PE firms have been struggling to retain younger talent due to competition from firms in other parts of the economy.
According to data from EY, 60 per cent of PE CFOs said it was difficult to recruit millennial and Gen Z employees and some 82 per cent reported issues with retention, especially larger PE firms with $15 billion or more in assets.
The challenge echoes recent calls for more diversity within private equity, which is slowly starting to increase. Research from McKinsey reveals that the percentage of ethnically diverse people and women talent has increased, and the promotion rate for women has increased at all levels.
However, though the amount of firms with over 30 per cent of front-office positions held by women has almost doubled between 2020 and 2022, it still remains below a quarter.
“The big public pension funds, the AP funds in the Nordics, and the big funds in Toronto, are the ones where, if you’re not taking note of DEI and aligning with it, you’re putting yourself at a significant competitive disadvantage. If you’re not internalizing it, it’s going to limit your ability to scale effectively,” observes Doolan.
The lessons learnt here will no doubt inform new strategies for private equity firms recruiting analysts, data scientists and technology professionals from all ages and backgrounds in the years to come.
