A new report on human capital in private equity indicates that management issues are the key cause of poor company performance.
A new report on human capital in private equity indicates that management issues are the key cause of poor company performance.
This is one of the results of the global report on human capital in private equity produced by RHR International and mergermarket. The research, carried out through a series of interviews with 100 senior private equity practitioners, concerns the human capital and management issues encountered by private equity firms throughout their fund cycle.
The two companies stated: ‘Private equity is under the microscope. Deal values are rising and as a result the profile of the asset class appears to be increasing exponentially. However, as market conditions continue to drive the buyout boom it appears that nothing is out of the reach of private equity. Furthermore, it is interesting to note the differences and dynamics which are fundamental to these firms and their deals, as well as the ways in which they are resourced and run. It is these characteristics which RHR have been closely observing and which form the basis of this global research report.’
Key findings from the survey include:
- Over two thirds of respondents (69%) believe that poor company performance is either very often or always attributable to management issues.
- Respondents were divided over whether management changes are implemented quickly and effectively enough. 37% believe they make such changes quickly, however, factors such as incumbent management and ‘egos’ were noted by respondents as impediments to quick and effective change.
- Respondents were keen to demonstrate that private equity firms are moving beyond a more instinctive approach when it comes to picking talent.
- The vast majority of respondents (85%) work for private equity funds that regularly assesses the performance and development of management teams. This mostly (59%) takes the form of annual or quarterly assessments and (360 degree) reviews. However, many of these respondents noted that reviews do not take place at Partner level or above.
- Given the increased competition in private equity, over a third of respondents see reorganisation and management assessment occurring very often post deal.
- With private equity continuing to develop in both size and scope, 54% of respondents believe that the management of the private equity firm will become more institutional in culture, which will bring a need for greater professionalism, structure, specialisation and operational excellence.
