With the current political and economic crisis in the Middle East region, Private Equity industry is experiencing a rapid transition, and the coming few years are likely to be critical for the industry. While the overall context is challenging, there are significant opportunities for private equity professionals and PE firms with the appropriate experience and a strong track record to smoothly sail through this crunch period. The manner of current strategic positioning for the eventual market improvement will also define the likely success stories and failures in the Private Equity industry in the medium term, states a recent research of CTPartners Executive Search Inc., a leading performance-driven executive search firm serving clients across the globe.
The impact of the turbulent macro-economic environment on Private Equity is well chronicled – a poor fundraising climate, a limited pipeline of deal opportunities, wide gaps in pricing, a lack of exit options, refinancing difficulties and poor market environments for many portfolio companies have impacted origination, portfolio management and exits. The consequence of these factors is a mixed picture for Private Equity hiring trends. The number of new funds continues to decline and investor’s reticence on re-ups continues to encourage a contraction in the industry. Post the crisis in 2007/2008, there was still significant hiring activity amongst many Private Equity players. According to a latest CTPartners report on the hiring trends in the PE industry, the following year saw a significant increase in Operating Partner hires, and 2010 saw more execution level hiring at Associate and Senior Associate level reflecting a pick-up in deal flow. Hiring in 2011, however, was uneven and institutionally specific. Firms that are prepared to invest in talent, despite the paucity of deals in the short term, may ultimately see perseverance rewarded.
Redundancies in private equity
According to the CTPartners hiring trends report, PE firm’s who haven’t already addressed their headcount, are likely to face office culls. “The industry will witness a delayed shake-up in Private Equity and its associated talent pool as it adjusts to a very different environment from that of the thriving years prior to 2007/08. Deal originators unable to impact fully contribute to portfolio company performance, or who do not have the bandwidth to identify, explore and execute cross capital structure investments, will find it difficult to remain relevant” said the report.
Areas which will see growth on the portfolio side
On the portfolio side, there is on-going demand for executive leadership profiles, notably in industrials, healthcare and in the services sectors. In particular, there is a noticeable desire for management profiles with a strong combination of skill-sets, e.g. prior direct sector track record combined with financial and operational turn-around experience, or multinational management experience with a demonstrable track record of acquisitions and integrations, notes the CTPartners report.
“The appetite for riskier, lateral hires is far more muted, with the hiring focus clearly geared towards the “safer bets,” of those with direct, related experience who can slot into the seat and seek to make a difference relatively quickly. This, of course, places a premium on the core talent pool of operational executives who have prior experience of working with private equity firms in each subsector. For those portfolio companies with deep restructuring requirements, demonstrable executive experience in dealing with debt negotiations and excellent financial technical competence is also an obvious absolute” said the latest CTPartners report on hiring trends in the PE industry.
Skills and experiences which are going to be most in demand
The investment professionals most in demand will be those with a strong, demonstrable track record of returns obviously, but also those less geared to financial engineering, and more those experienced in real input from the operational perspective: Working with the management team, able to work through choppy market conditions. They will be experienced in ongoing management assessment and motivation, and be able to work closely on operational issues, when they have clear input to provide. Portfolio other investors on an interim basis that can lead to securing a longer term position
The outlook for Private Equity hiring on the portfolio side remains robust at the leadership level, particularly in key sectors, but remains mixed and largely reactive on the investment side with some notable exceptions, says the CTPartners report. A lack of deal flow, and depressed carried interest valuations, has led to a less entrenched talent pool at the Partner and Principal level who are often now more open-minded to exploring other platforms. For the players with the capital and capability to think longer term on building their business and acquiring talent, there may not be a better time to hire.