Private Equity Market Booming and With it the Need for Top Talent is Expanding

May 18, 2022 – Private markets bounced back in 2021. After a year of pandemic-driven turbulence that suppressed fundraising and deal activity, private markets rebounded. Fundraising was up by nearly 20 percent year over year to reach a record of almost $1.2 trillion. A new set of risks emerged at the beginning of 2022 with the potential to undermine growth and performance. Russia’s invasion of Ukraine, higher inflation and interest rates, and supply chain and labor challenges were already increasing volatility just a few months into the new year, according to a recent report from McKinsey & Company.

Private equity continued to drive global growth in private markets. Fundraising rebounded across regions, and global totals fell just short of the pre-pandemic peak established in 2019, said the consulting firm. Assets under management reached a new high of $6.3 trillion, driven primarily by asset appreciation within portfolios. With a pooled IRR of 27 percent in 2021, PE was once again the highest performing private markets asset class.

PE also continued to outperform relative to most public market equivalent (PME) measures, said the consulting firm. LPs increased their exposure to earlier-stage private investing. Venture capital continued to attract capital on the back of a decade of strong performance but was outpaced by growth equity. With increased funding for VC and companies remaining private for longer, the investable universe of growth companies has expanded substantially. PE firms have moved to fill the space, and the supply of growth equity vehicles has evolved: in the last decade, six of the largest buyout managers have launched a growth vehicle.

In the first quarter of 2022, VC and growth equity combined to make up 47 percent of PE fundraising, just shy of buyout’s share. PE fundraising ‘winners’ do so by growing their flagships and raising more frequently. While product proliferation played a role, the 20 firms that have gained the greatest share of new capital raised over the last five years have done so predominantly by raising larger and more frequent flagship vehicles. These firms more than doubled the size of their flagship funds over the preceding half decade and raised every three years, on average.

Having the Right People in Place
What does all this mean for the executive search industry? Recruiting the right people to put in senior roles at PE portfolio companies and developing executive leadership teams to drive growth is hotter than ever. The most direct way a search partner can help PE/VC firms looking to build out management teams is obviously to identify, attract, and introduce strong talent. But, the true value of a strong search partner lies a level deeper—in the unique perspective and pattern recognition that comes from speaking with the most successful and influential leaders in a given space, recruiters say.

“The current geopolitical and macroeconomic uncertainty is never good in any market,” said Mike Silverstein, managing partner and healthcare technology practice leader of Direct Recruiters. “During the beginning of the pandemic, there were a lot of questions about how all markets, but especially private, would survive – but as the recent reports of 2022 suggests, the private market momentum shows no signs of declining. In 2021, private equity set a noteworthy new standard for itself and the pandemic did little to reduce the industry’s momentum. But now, with the recent crisis in Ukraine and the elevated circumstances the world now faces, the impact on global markets and the future of VC and PE space is uncertain,” he said. “The immediate reaction for many PE and VC firms is to pump the breaks on aggressive M&A activity and voracious spending. However, businesses with solid fundamentals and balance sheets can move forward with their plans. In addition, portfolio companies backed by strong investors will continue to thrive in 2022.”

Some of the biggest challenges in recruiting talent can be attributed to the candidate-driven market we are currently experiencing, said to Mr. Silverstein. “Right now, it’s about attracting the right candidates, engaging the qualified candidates and then hiring them fast because the demand for labor is still relatively high compared to pre-pandemic numbers,” he said. “There has also been inflation from a salary expectation standpoint on the candidate side of the market. If the aforementioned geopolitical and macroeconomic influences slow down, and inflation increases, there will be downward cost pressure on companies’ hiring capabilities. As we navigate through the current candidate-driven market and influx of counteroffers, we are set for some tension in what candidates think they’re worth and the potential for settling into what’s been a very aggressive hiring market.”

Ramifications of having so much dry powder available may have investors wondering if the market has become saturated. However, Mr. Silverstein notes that the amount of dry powder is relative to total assets. “As both dry powder and total assets grow, the private equity industry has shown itself capable to assume more capital, but that does not mean the market is free from risk,” he said. “Having a plan is paramount as private equity firms must assess external factors like rising inflation, supply chain issues, and the war on talent before continuing with their plans. The overvaluing and overpaying for mediocre assets, regarding the talent market, means that the recruiting process must be expediated to get ahead of the competition. This also means that mediocre candidates are commanding dollars that are normally reserved for top-end talent.”

Accelerated Process
SPACs entered the market as an accelerated process for companies to go public compared to the more traditional route of an IPO, according to Mr. Silverstein. “Recently, we have seen a slowdown of SPACs as market conditions become more favorable,” he said. “In addition, most of the small to mid-cap firms that we work with are not eyeing SPACs as a method to achieve an exit. Most are looking at large strategics as their vehicle to achieve their equity event in addition to other changes in ownership between investment firms.”

The clear message from investors who started fundraising before the war in Ukraine broke out is that fundraising efforts have become increasingly difficult due to the increased risk factors, says Jens Friedrich, CEO of SpenglerFox. “Other than that, investors and portfolio companies have reason to be satisfied with the current ROI,” he said. “Only a few of our clients have exposure to either Russia or Ukraine, and for those that do, clearly, it is a hugely different ballgame today compared to two months ago. Regarding the pandemic, with most restrictions meanwhile lifted across Europe, it is now largely business as usual. Inflation and currency fluctuations will obviously impact returns give the higher cost of borrowing as well. Looking ahead, it all depends on whether the war in Ukraine will be contained or not. If so, the effect of sanctions on Russia will have negative economic implications for all companies across the continent. Should the conflict escalate, we would be facing a significant financial and economic crisis.”

Mr. Friedrich notes that his firm has been successful in recruiting senior talent for PE/VC backed portfolio companies across Europe. “This has always been a difficult sector to recruit into, and that is not likely to change. Two latest trends stand out for us above the rest,” he said. “Firstly, as a direct consequence of the pandemic, work-life integration has become an important consideration for employees, which leads to a major trend for people wanting to be able to work from anywhere. This can be difficult for some high-growth, early-stage companies to embrace where teams are onsite and hands-on. However, on the positive side, companies that can offer a work-from-anywhere arrangement, now have access to a much larger and global talent pool. Secondly, the pandemic led to a preference by employees to work for stable companies. Consequently, the volatility of early stage and smaller high-growth companies may not be a preferred employment option for riskaverse employees.”

“Challenges notwithstanding, we also see opportunities,” Mr. Friedrich said. “For example, executives leaving the corporate sector are increasingly interested to take up roles with PE-backed companies. Additionally, many companies in the sector are warming up to outsourcing solutions such as RPO, HR, and leadership development outsourcing, and these are areas where we are investing into.”

When exploring new opportunities in the current market, CEOs and other top leaders are looking to see a good synergy between the board or PE sponsor and the company to make sure there is alignment on vision, according to Jeff Harris, founding partner of Bauer Harris Executive Search. “These leaders want a unique opportunity with a dynamic, forward-thinking organization where they can have the autonomy to execute the value creation plan with the financial support necessary,” he said. “They are looking for agile companies with a thesis of growth to drive returns rather than an organization in maintenance mode. Most CEOs and top leaders are looking for new challenges and the ability to implement transformation. Companies looking to attract top talent need to be able to clearly articulate their growth strategy and their vision for achieving it. What is the company’s path to growth? Companies also need to be able to define their competitive advantage in the sector and where they stack up against their competitors,” he added.

Trends Effecting the Market
The demand for talent in VC/PE backed companies is at historic highs, according to Mr. Harris. For 2021, open search volumes for CEOs were up 94 percent (VC) and 54 percent (PE) while open search volumes for CHROs were up 251 percent (VC) and 200-plus percent (PE) and CFOs were up 88 percent (VC) and 79 percent (PE). “With the amount of dry powder in the market, this trend will likely continue as more investment capital comes into the middle markets,” he said. “This has caused a shift in hiring strategies where companies have become more flexible and open to non-traditional remote/hybrid arrangements that allow them to recruit outside of their corporate footprint,” he noted.

“This has also been driven in part by the pandemic which added challenges to relocation,” said Mr. Harris. “The talent pool is shrinking as demand outpaces the supply of proven players with VC/PE experience which is putting upward pressure on compensation across the C-suite. There has also been a rise in interim roles as a lot of qualified executives are going the consulting route for pay and flexibility and companies are looking to bridge the gap while they search for a permanent solution for a C-suite vacancy. In order to get in front of these challenges, VC and PE firms are building out their talent acquisition teams to manage the search load and create pipelines of qualified candidates for their portfolio companies.”

Private equity firms continue to focus on growth and value creation strategies that have a persistent underpinning of continuously striving for proven leadership and talent at all levels of their portfolio companies, according to John Coutts, partner at Bauer Harris. “A key functional leadership role PE firms globally are continuing to recognize is the importance of proven strategic HR leaders within their respective portfolio companies,” he said. “The valuable contributions made by the CHRO as a strategic business partner to the portfolio CEO, the board, private equity partners and operators have a meaningful impact on a company’s overall performance.

“The ideal CHRO profile for private equity portfolio companies are leaders bringing a wide range of HR experiences including merger and acquisition experience, strategic business unit spinoffs and experience within companies that do operate with a data driven and strong bottom line business focus,” said Mr. Coutts. “HR leaders who excel within private equity portfolio companies possess agility and the ability to adapt to a constant pace of change. It is imperative that the CHRO can drive change successfully using limited internal resources. HR leaders who have helped lead successful business transformations along with driving measurable talent upgrades at all levels in an organization are highly sought after by PE firms.”

“Between a lingering pandemic, an accelerating humanitarian crisis and runaway inflation, we’re facing a moment of unprecedented disruption and uncertainty,” said Dominic Lévesque, president of Tatum. “What should VC and PE leaders be focused on in that context? Namely, where and how these things are linked. For example, we know that disruption typically exerts upward pressure on prices. But does that mean the price increases we’re seeing right now are only temporary — additional fallout, perhaps, from COVID-19 and global supply chain disruption? Or are they here to stay?”

For now, no one can really say, Mr. Lévesque notes. He says that what’s not up for debate, however, is that unanswered questions like these have made markets around the globe particularly jittery of late, and why the following two factors should be front and center for VC and PE leaders: First, where will increasing inflation — and related changes in interest rates — undercut the value of your currently held assets most significantly? Second, how much harder will it be for you to generate the desired returns across your portfolio as a result?

To a large degree, tech remains the focal point of VC and PE investment, accounting for north of $400 billion in deals last year alone — and specific sectors within the tech space have glowed red hot lately, according to Mr. Lévesque. “Take fintech, for example: Aggregate investment in fintech rose more than 95 percent in 2021 compared to 2020, and a 40 percent increase in transaction volume went along with it,” he said. “At the same time, the broader environment is pushing VC and PE firms to other sectors of the economy as well. COVID-19 at least partly accounts for the uptick in interest in life sciences companies, for example. Similarly, VC and PE investment in air freight and logistics companies reflects heightened awareness of supply chain vulnerabilities in light of the global pandemic.”

In looking ahead, Mr. Lévesque notes that it’s also worth looking backward. “The fact is, last year’s record-setting $5.9 trillion in M&A transactions spanned a wide range of transaction types touching virtually every industry — and all signs point to PE investment continuing along more or less similar lines in 2022,” he said. “Firms will keep tech targets in their crosshairs, to be sure, but expect the scope of new deals to extend to many other industries as well.”

Competitive Market
The market is more competitive than ever and it is truly a buyer’s market, according to Bianca Moreno, partner at SPMB Executive Search. ”Executives have a lot more leverage when it comes to negotiating offers due to the sheer amount of opportunities in the market,” she said. “More often than not, executives are fielding multiple offers from different companies at the same time. Given this, executives are indexing more than ever toward cultural alignment and ensuring alignment between corporate missions and personal missions. “We are seeing a big focus on ESG and DEI initiatives specifically – if the right attributes or missions are not in place executives are turning opportunities down. We are also finding that many executives are being more discerning when it comes to the end market or domain. They can afford to wait for something to come around in a specific area versus feeling like they need to take the first CEO opportunity that comes their way,” she said.

“We are starting to see a lot more scrutiny and focus from executives on equity acceleration language,” said Ms. Moreno. “A lot of equity plans do not outline full acceleration upon a change in control. More often, it is a handshake assumption that the investors will take care of their executive teams upon a change in control. However, executives are increasingly providing more scrutiny and pushing back on these clauses and putting more pressure on boards when negotiating their equity packages.”

“The HR function has always been a critical role in private equity; a major factor being the misconception many employees have of uncertainty and cost cutting associated with a PE investment or acquisition event,” said Dean Nacey, partner at SPMB. “Thus, HR leaders are at the forefront of retention during these times, which is strategic to any investment. The pandemic has created added emphasis on creative and thoughtful HR leadership, as there is an opportunity to partner with their finance peers to define and implement the next generation of work practices. This partnership addresses talent branding, employee experiences, and remote / hybrid workforces, and does so through a lens of diligent investment and cost savings. Going forward, the best PE HR leaders will be able to define the future of remote and hybrid work, create a competitive advantage through talent acquisition, and continuously build operating efficiencies.”

Traditionally, corporate HR is a long-term, slow growth model typically measured by KPIs on a quarterly and annual basis, according to Mr. Nacey. “However, with most PE investments, there is a perceived opportunity to create value in an undervalued asset, which must be done quickly,” he said. “Realizing this value requires major changes to a company at a rapid pace as it relates to company composition (the workforce, potential acquisitions or divestitures), operating behavior, or newly emphasized KPIs. The PE operating environment, therefore, requires an entirely different HR leader than traditional corporate businesses. HR leaders in PE-backed companies play a critical role in retaining talent, identifying growth and expansion opportunities, while also partnering with finance to ensure the workforce cost structures remain in line with the investment thesis.”

Ultimately, in recent months there has not much of a change in terms of activity in the PE sector due to an abundance of money to invest, according to Bernard Layton, managing director and CEO of Comhar Partners. “It may be causing a little more caution in the deals that are done, but there is so much dry powder in terms of deals. It is remarkable,” he said. “In terms of the activity level, it creates interesting stress on talent. People are a little more reticent to make changes given some of the uncertainties in the world. However, at the end of the day, the roles can be filled. It’s just a bit more of an extensive process than it has been in the past.”

Mr. Layton notes that one of the biggest challenges is there are not enough people with private equity experience. Comhar Partners sees the lack of experience in certain C-level roles, particularly the
CFO role. “Ultimately, the leverage of technology has proven to be an interesting point of capture for many private equity firms in looking at how they can deploy technology for better efficiencies in the businesses,” said Mr. Layton. “Certain sectors are thriving more than others. Price, pressure, and inflation are limiting some of the food and consumer areas but, ultimately, many service companies or professional management companies are still thriving. Comhar Partners is seeing a strong effort in the tech sector as well.”

Technology appears to be a very strong area, according to Mr. Layton. “There is still a steady state of work in the lower mid-cap sector,” he said. “Large-cap seems to be off a bit as the cost of capital is going up. Ultimately, talent is being affected. There are not enough individuals in the mid-cap and lower-mid-cap range to fill the C-level positions that are out there. Particularly as the PE firms are focusing on prior successful private equity experience.”

Mr. Layton also notes that the challenge is finding quality deals. Not only quality deals but having the private equity or the talent to fill in those key roles. Comhar Partners is seeing very strong demand in the market for good talent and ultimately, aligning with good private equity firms and prior CEOs who are then working to be a key acquisition partner in a thesis based cornerstone business and then doing add-ons to it. “There is just so much money out there,” Mr. Layton said. “The other interesting affect is the small cap or lower mid cap companies are now more and more selling, as a strategic exit, into the larger private equity firms. Ultimately, that is leading to an interesting play in terms of selling to PEs and understanding that the differences, market dynamics, and valuations are being altered a little bit because of it.”


Emily Murgatroyd, founding partner of Ivy Group, has witnessed an acceleration of the trend to build out PE talent acquisition capability to handle and direct external searches as well as liaise with portfolio companies. “There’s an increased focus for PE/VCs to focus on diversity, equity, and inclusion with the understanding that it needs to permeate through the entire organization,” she said. “We’re seeing more mandates with a specific intent around ensuring a more diverse candidate slate but there is a still a momentous amount of change and development that needs to happen here.”

“We’re seeing a recognition of the importance of strategic HR for portfolio companies,” said Ms. Murgatroyd. “It still isn’t the first hire made but it is climbing up the ranks in importance. No one likes bad Glass Door reviews and PEs are just as open to scrutiny as any other organization. Employees are looking for organizations that share their values and people and culture functions are at the heart of building healthy cultures,” she said.

“PE HR functions need to be laser focused on hiring internally and for portfolio companies,” Ms. Murgatroyd said. “They need a radar for talent attraction, assessment and development. We see less emphasis on traditional HR functions in PE companies where talent is emphasized vs corporate that might see a more robust people and culture practice that spans talent, organizational design, training and development, compliance, etc.”

“Really since the fourth quarter of 2020, the market has been relentless,” said Matt Hamlin, managing director at PierceGray. “With much of our work happening in PE-backed environments, we have seen consistent volume demand ranging from supply chain and operations needs to top-line, growth-focused executives over the past 18-plus months. Early 2022 has been much the same, with the typical quick start to the year.”

“With much of our focus in supply chain and operations, there is no doubt that global economic conditions have emphasized the need for high-performing teams capable of navigating this dynamic environment,” said Mr. Hamlin. “While some of the demand was a result of back-fills due to performance needs or even mobile executives, we continue to see high demand in newly-created roles as organizations are playing ‘catchup’ in professionalizing functions after the slower 2020.”

Full Speed Ahead
“We can be somewhat positively insulated given our depth in supply chain and operations, and the need to control costs and improve delivery across industries,” said Mr. Hamlin. “With private equity fundraising and deal volumes remaining at or near their peaks, we expect continued executive team transitions as companies transact.”

Hybrid and back-to-office uncertainty have created some confusion in hiring processes when not proactively managed, according to Mr. Hamlin. “Employers that were comfortable with remote working a year ago may be changing policies, and that needs to be crystal clear to in-coming hires,” he said. “There is an opportunity for confusion when a candidate is considering a position, particularly one where relocation is required. In select cases, we have seen late stage candidates fall out of process given hardline requirements around office expectations, including shifting relocation mandates.”

“With most of our search activity focused on growth environments, as opposed to distressed environments, the vast majority of our searches are impacted in some way by either current or planned inorganic growth,” Mr. Hamlin said. “M&A activity drives significant search activity as changing organizational needs often create new position requirements. We are often engaged in advance of planned acquisitions, or at the onset of integration planning activities as to-be organizations are defined.”

Resilient and Robust
While there was a significant decline in private equity deal activity in 2020, the private equity market has proven to be resilient and robust,” said Rob Crawford: managing director, financial services, private equity and financial officers at Diversified Search Group. “As a result of pent-up demand and favorable industry fundamentals, we saw an incredibly active year last year with record deal volume and capital raised. Now, we’re seeing activity tempered amid ongoing and new global challenges that have raised uncertainty in the market such as the war in Ukraine and transitioning to the endemic phase of COVID-19 and new strains of COVID-19 from the pandemic phase.”

“Another challenge, of course, is inflation,” Mr. Crawford said. “Historically high inflation rates have translated to higher costs of financing and assets, putting more pressure on PE returns. Over the last two decades, asset prices have risen steadily as interest rates declined to historical lows. As such, PE investors have been more concerned about valuations and sought to sell certain assets more quickly before valuations fall. Higher valuations in a market
environment of costs and uncertainty require firms to emphasize much more rigorous deal evaluation and post-closing value creation strategies. These dynamics have made it increasingly important that private equity firms ensure that the right leaders are in place to execute value creation plans to continue to drive returns.”

Being successful in navigating the challenges of today’s market requires a new kind of leader, and we know from data that greater diversity can enhance company performance, according to Mr. Crawford. “Across the board, we’re seeing private equity firms prioritize more diverse leadership at the firm, portfolio company leadership, and board levels,” he said. “At Diversified Search Group, we’ve always been deliberately different in our approach in identifying and diversifying leadership across all industries.”

“To accomplish this for the PE sector requires an approach that extends beyond just gender or ethnic diversity,” said Mr. Crawford. “Given the historical lack of diversity, we advise our private equity clients to look beyond solely focusing on leaders who have traditional PE experience. Rather, we believe that it’s important – especially at the portfolio level – to focus on competencies in addition to experience and cultural contribution in order to ensure that firms are considering and leveraging the absolute best talent from the broadest and different networks. We believe that this is of paramount importance in this dynamic market environment.”

“Given some of the circumstances we’re all seeing, relative to inflation, the economy, or with the situation in Ukraine, just generally there may be more tentativeness related to how long the party can last, so to speak,” said Keith Giarman, managing partner, global private equity practice, for DHR Global. “But I don’t expect based on other things I’ve seen for it to materially change the pace at which we’ve been moving in the key areas where we focus. There’s just so much private equity money in the system now, whether the deal-making pace is torrid or less torrid, or they’re in investments they’ve had for a year or two, where they need to think about changes, or they’re five years, six years in, and they’ve been trying to sell a company and have had some difficulty doing so. At every point along the investment cycle, including pre-deal, people need help with talent. And I don’t see that fundamentally changing.”

Dan Hawkins, founder and CEO of Summit Leadership Partners, says that in 2021 his firm’s revenues were up 40 percent over 2020. “Last year we probably saw the most private equity deal transactions that we’ve seen in our history of Summit,” he says. “And we get pulled in both for due diligence as well as post-transaction assessment work.” The first quarter of this year, meanwhile, was a record quarter for the firm, running 100 percent over last year’s showing for the same period.

“Despite the high inflation, supply chain problems, and interest rates rising, businesses are still growing,” says Mr. Hawkins. “The fundamentals are still very strong. Private equity is very bullish on investments and has been very active. And we tend to work more on growth equity than more distressed assets private equity. And so growth equity and the markets such as technology, healthcare services, business services, life sciences, they’re all continuing to grow and invest. The second thing is that private equity is still sitting on a lot of dry powder to put to work. So there’s a lot of capital that needs to be invested. And so the deals are still flowing fast,” he said. “And the third thing is the talent challenges, not only with the Great Resignation, but also just the challenges that CEOs and management teams are facing as they lead in unchartered waters, driving growth in a post-pandemic world, leading remote workforces. CEOs and management teams are really challenged.”

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