October 16, 2023 – In recent years, private equity firms’ desire for top talent has reached an all-time high. This high level of demand is in response to a recognition across the industry that having the right people in key executive roles is a critical factor in how private equity firms are able to maintain growth amid significant market change. However, a new report from Cowen Partners Executive Search says that attracting and retaining top talent has been challenging, especially as competition continues to increase. If private equity firms aim to create long-term growth, they must know how to select the right candidates.
“Many PE firms are turning to executive search firms for help in this regard, as these firms understand what makes an ideal PE candidate and provide access to talent that meets that criteria,” the study said.
To that end, Cowen Partners offers five ways that executive search firms are helping private equity companies find success in their talent management endeavors:
1. Valuing Soft Skills and Emotional Intelligence.
Private equity is a people-oriented business. While having excellent financial and operational acumen is essential to getting the job done, having great people skills is equally important, according to the Cowen Partners report. “Consequently, soft skills and emotional intelligence are two of the qualities that private equity firms should strongly consider when evaluating candidates for executive positions,” the search firm said. “The basic premise is that while private equity leadership skills can be taught, a value system cannot. PE firms are looking for people who truly value what their employees bring to the table.”
With that said, the Cowen Partners report explains that two soft skills stand out among the rest in terms of what makes a good private equity leader: communication and inspiration. “These skills are especially important during corporate transitions, and many private equity firms are retooling their hiring processes to understand how candidates have supported and inspired their staff during times of turmoil or change,” the report said. “They are also critical for deal-making and relationship-building with investors, as well as learning to work with board members to get things done. As private equity firms continue to focus on talent management, putting character at the forefront of their search criteria can pay off in many ways.”
2. Understanding Workforce Dynamics.
The nature of work in every sector has shifted in recent years, according to Cowen Partners. “Many potential employees are enjoying the rise of the remote and hybrid work era and desire to continue that trend for the foreseeable future,” the firm said. “Candidates must realize that this conversation isn’t going away anytime soon, and private equity firms will want to understand how they plan to lead through this greater cultural shift. It’s vital for candidates to have a keen understanding of how to balance the desire for remote and hybrid internal work environments with an assessment of what will produce the best outcomes for external partners.”
The study notes that an integral part of getting workforce dynamics right is having the know-how to create an exceptional employee experience and when employees feel heard and supported, it translates to greater productivity and better outcomes across the organization.
3. Garnering Expertise Across the Organization.
“While it’s important that private equity firms choose candidates who have run successful businesses and understand the ins and outs of the industry, cross-functional expertise is also highly valuable,” the Cowen Partners report said. “The nature of business has become extremely complex as competition has increased in every sector, and firms need executives who understand how all the puzzle pieces fit together to create a big-picture vision.”
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As a result, many firms are searching for candidates who have worked in different roles within the organization. With direct experience in various areas comes a unique understanding of what needs to be done when things go wrong.
“Instead of guessing at solutions, executives with cross-functional experience can take the reins with hands-on leadership and guide others through the problem-solving experience or step in themselves if needed,” the report explains. “Adaptation and an operator mindset are key in the world of private equity, and cross-functional leaders often demonstrate these abilities better than others.”
4. Maintaining a Change-Oriented Mindset.
In today’s market landscape, things are shifting quickly, and Cowen Partners says that private equity firms are placing a priority on executives who have the ability to lean into it and lead through it. “Digital transformation continues to be a significant concern,” the firm said. “Portcos are increasingly looking to digital solutions to increase revenue and accelerate exit times. In the same way, private equity firms realize that digital transformation can provide them with a competitive advantage when it comes to value creation throughout the deal lifecycle. In this day and age, firms are looking for executives who have the experience, instincts, and bold vision necessary to drive change in this area.”
They desire forward thinkers who display operational excellence and can integrate technology and business strategy in a way that produces greater returns and long-term growth.
5. Leaning Into Diversity, Equity, and Inclusion Initiatives.
In recent times, diversity has become a top talent management priority for many private equity firms. A Gartner study found that 75 percent of organizations with diverse and inclusive decision-making teams exceed financial targets, while gender-diverse teams outperform more homogenous teams by 50 percent on average.
“While private equity firms do realize that diversity can significantly enhance performance, it’s important to note that it’s not a priority for every firm,” the Cowen Partners report said. “In their talent management strategies, it’s important for firms to understand a candidate’s values and keep cultural fit at the forefront of their minds. Doing so ensures that PE firms attract candidates with similar value systems and that those candidates have a higher likelihood of staying long-term.”
Retaining Top Talent Is About Finding the Right Fit
As the business landscape continues to change, private equity firms must also shift their talent management priorities, the report concludes. Cowen Partners says that a diverse, emotionally intelligent, people-oriented leadership team can drive the results that firms are longing to see.
“Cross-functional capabilities with an eye toward operational excellence and digital transformation can help firms create immense value and increase their own bottom line,” the report said. “While hard skills used to be the name of the game in private equity talent management, this simply isn’t the case anymore. Inspirational, forward-thinking leaders who value culture and communication will take a firm further faster.”
Cowen Partners serves both small and large, publicly traded, pre-IPO, private, and non-profit organizations. Its clients are typically $50 million to multi-billion-dollar revenue Fortune 1000 companies or have assets between $500 million to $15 billion. Placements span the entire C-suite and include VP and director-level leadership roles. Cowen Partners has placed hundreds of candidates in industries including technology, healthcare, manufacturing, retail, financial services, and private equity.
Contributed by Scott A. Scanlon, Editor-in-Chief; and Dale M. Zupsansky, Managing Editor – Hunt Scanlon Media