How Private Equity Outfits are Keeping Recruiters Busy
November 28, 2023 – Attracting and retaining top talent is a challenge given the specialized skills and experience required to be successful in a private equity-backed portfolio company. When seeking potential talent for leadership positions, PE firms are laser-focused on finding specific domains and industry expertise to fit the unique culture and environment of their investments, according to Rob Crawford, managing director with PierceGray. “On top of background and sector knowledge, identifying candidates with demonstrated flexibility and adaptability to operate in a fast-paced and dynamic environment shrinks an already limited pool of talent,” he said. “While past success can often predict future success in this sector, the number of potential candidates with previous successful private equity experience and expertise is even more constrained, creating a highly competitive search for top talent.”
“Organizations and PE firms often face challenges in retaining talent due to factors including limited career advancement opportunities, lack of work-life balance, or inadequate compensation,” he said. “Identifying the right candidate poses its own unique challenges; however, retaining talent is just as important as recruiting talent.”
Coming off the historic highs of PE deals, exits, and fundraising that we saw in 2021 and 2022, this year PE and VC firms have continued to see a sharp decline in activity that started in the latter half of 2022 in response to rising interest rates and global economic uncertainty, Julia Dashuta, a managing director with PierceGray, explains. “The overall decline in activity is expected to persist through the medium term, with unpredictable and uncertain macro forces in play such as inflation, the war in Ukraine, growing conflict with China, and rising interest rates,” she said. “With more limited deal activity, private equity and venture capital firms are placing greater emphasis on creating value within their existing portfolio companies, both through operational improvements and strategic initiatives.”
PierceGray has seen a shift in the types of roles that are currently in demand and expect these trends to continue. “We’ve seen an uptick in demand for private equity operations roles at the fund level as PE firms look to invest in resources that will drive cost out of their portfolio companies as growth may be more constrained in this challenging environment,” Ms. Dashuta said. “Many of the operating partner and other cross-portfolio executive roles have skewed toward functions with cost-out impact, such as procurement and operational excellence as opposed to growth-oriented roles in past years.”
Related: Building the Best PE and VC Leadership Teams in 2023
“At the portfolio company level, we’ve seen an increase in demand for supply chain and procurement leadership talent as companies continue to work through the supply challenges from the pandemic and increase their focus on driving cost savings and operational excellence in this uncertain market,” said Ms. Dashuta. “In spite of the current market uncertainty, there is reason to be hopeful for the future of PE/VC in both the medium and long term. The private equity market is resilient, and dry powder is at an all-time high, with PE firms ready to invest when market conditions improve. Many of our private equity clients are optimistic about a turnaround expected next year.”
Challenges in Retaining Talent
Mr. Crawford explains that organizations and PE firms often face challenges in retaining talent due to factors including limited career advancement opportunities, lack of work-life balance, or inadequate compensation. “Identifying the right candidate poses its own unique challenges; however, retaining talent is just as important as recruiting talent,” he said. “High turnover rates can disrupt operations and lead to increased recruitment costs. Given private equity’s notoriety for its demanding work hours and high-pressure environments, both current employees, as well as potential candidates, may be hesitant to stick through the investment horizon due to concerns about work-life balance.”
Opportunities and Challenges in Private Equity Recruiting
Private equity firms are saying that talent is the most important factor in driving growth. While financial engineering, inorganic growth, and market expansion remain important tools in the private equity toolbox, talent continues to emerge as key to growing companies and achieving the investment thesis, according to a report from Bespoke Partners. Yet unlike strategic assets, intellectual property, or other resources that fuel growth, talent can be notoriously difficult to optimize. In fact, the biggest challenge for the PE sector is getting talent right, according to Nat Schiffer, managing partner at The Christopher Group. “PE firms often compete with other financial services firms, technology companies, start-ups, and other industries for the limited pool of qualified talent with the necessary skill-sets and experience for the PE industry,” he said. “The intense competition for top talent can make it challenging to attract and retain qualified candidates who may have multiple options.”
“PE firms require candidates with a specific blend of financial acumen, operational experience, and industry knowledge to drive value creation in their portfolio companies,” he said. “Finding candidates with the right mix of skills and expertise, particularly in specialized industries or niche markets, can be challenging, as these candidates may be in high demand and have limited availability.”
“While these positions can be highly coveted due to compensation packages and lucrative equity participation, search firms are no strangers to unrealistic salary expectations set by both candidates as well as other firms competing for proven experts in the field,” Mr. Crawford said. “Overcoming these challenges requires a strategic talent acquisition approach that can key in on the specific motivation behind a potential candidate’s desire to make a change. Finding the right candidate is no easy task in today’s competitive environment.”
Related: How Talent is Driving Private Equity Success
PierceGray is a specialized, retained executive search firm focused on building leadership teams in investor-back environments. The firm is functionally-focused, hiring executives and building teams in the following disciplines: operations and supply chain, sales and marketing, finance and transformation, and general management. PierceGray’s clients include private equity firms and portfolio companies as well as publicly-held companies across North America. PierceGray has been operating since 2006 and serves clients in nearly every industry sector in North America.
Mr. Crawford is a managing director with PierceGray in the New York office and offers a depth of knowledge in the finance industry. He has invested several years partnering with private equity-backed and public companies to recruit C-suite executives, senior management, and board members. Mr. Crawford spent over two decades as a M&A and financial sponsors investment banker for private equity clients before transitioning into search.
Ms. Dashuta is a managing director with PierceGray in the Chicago office and specializes in recruiting senior executives into private equity-backed environments. Prior to PierceGray, she spent 11 years with Deloitte Consulting’s strategy and operations practice, where she led engagements for clients primarily in the healthcare industry with a focus on assessing, designing, and implementing large-scale operational transformations.
Related: The Market for Senior Roles Heating Up at Private Equity Firms
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Executive Editor; Lily Fauver, Senior Editor – Hunt Scanlon Media
